Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

ROYAL HOLLOWAY AND BEDFORD NEW COLLEGE BILL [Lords]

Order for Second Reading read.

To be read a Second time tomorrow.

GLENSANDA HARBOUR ORDER CONFIRMATION BILL

Considered; to be read the Third time.

Oral Answers to Questions — EMPLOYMENT

Wages Councils

Mr. Robert Hughes: asked the Secretary of State for Employment what representations he has now received in response to the consultative paper on wages councils.

Mr. Thurnham: asked the Secretary of State for Employment what recent representations he has had about the possible abolition of wages councils.

The Secretary of State for Employment (Mr. Tom King): I have received a number of representations this year on the future of the wages councils system, the majority advocating either abolition or major reform.

Mr. Hughes: Has the Secretary of State seen the survey published yesterday in Manchester, which shows that 43 per cent. of companies visited by wages inspectors were illegally underpaying some or all of their workers? Does the right hon. Gentleman recollect the statement by Winston Churchill when wages councils were first set up, pointing out the benefits of a wages protection system, and saying:
without such a system the good employer would be undercut by the bad and the bad employer would be undercut by the worst"?
Does not that statement still hold good today? In view of the evidence about the need to strengthen wages councils, will the Secretary of State therefore abandon all plans to abolish them?

Mr. King: The hon. Gentleman knows that I have invited responses to the consultation paper that I issued. I take that to be his response, and I shall take it into account together with the other representations on the matter.

Mr. Thurnham: Does my right hon. Friend agree that when people are put out of work by the activities of wages councils, that is difficult to defend?

Mr. King: There is evidence of jobs being lost through the operation of wages councils, but the other important point is that is it generally agreed that the abolition of wages councils could lead to the creation of a significant number of jobs. That is the advice of the economic adviser to the Leader of the Opposition. He puts a lower figure on it than some, but concedes that it is likely to lead to more jobs.

Mr. Meadowcroft: Are not the conditions for the low paid even more difficult now than they were 70 years ago when the regulations were first introduced? Surely, where there is a large amount of unemployment, the pressures on people at the lower end of the market will be ever more difficult to cope with. Is it not important to maintain some protection to make sure that people are not exploited by the high amount of unemployment?

Mr. King: I note the hon. Gentleman's comments, precisely because I wish to expose all the arguments for and against the existence and reform of wages councils in relation to the consultation paper that I issued. I shall take careful note of the representations that I receive.

Mr. Colvin: Does my right hon. Friend agree that it could be most unwise to abolish wages councils if the unemployed could draw more money on the dole than they were likely to earn if pay were deregulated? Will he therefore give an undertaking to the House, before abolishing wages councils, that he will do something about the so-called "Why work?" syndrome, which at the moment detracts discourages people from trying to earn low pay?

Mr. King: I accept my hon. Friend's point that in certain circumstances the present system acts as a disincentive to employment. It is precisely for that reason that we sought, for example, to tackle the problem of national insurance contributions and make changes in that respect, as well as in tax thresholds, which can help in those areas. However, my hon. Friend will know that that is one other illustration of the way in which the circumstances are substantially different from what they were in 1909.

Mr. Leighton: As the Secretary of State knows, his Department has commissioned some major research from a group of Cambridge economists and researchers. One of its main conclusions was that the wages councils had had no significant effect on employment. Why has the Department not published that major report? When will it be published to inform the present public debate?

Mr. King: I am surprised that the hon. Gentleman asks that question, because the report was made available to him and to other members of the Select Committee some time ago and it is about to be published generally. We intend that the document will be published, if not this week, next week.

Mr. Brandon-Bravo: In considering this most important matter, will my right hon. Friend pay particular attention to redefining the term "adult skill", to open up the market to young adults?

Mr. King: I understand my hon. Friend's point. One of the distinctions that is it interesting to draw is between the more simple form in which the wages councils were set up under the initial concept and the more complex way in which they are formed now. That is one of the many reasons why so many people support reform.

Miss Boothroyed: Is not aiming their guns at the poorest paid in the country a sign of the abject poverty of the Government's approach to reducing the total of 4 million unemployed?

Mr. King: Differing figures are put on the possible increase in employment as a result of such a move, but they could not be ignored by any responsible Government determined to use every effective approach to help solve the biggest problem that we face.

Mr. John Townend: I draw the attention of my right hon. Friend to early-day motion 580 calling for the abolition of the wages councils. Is he aware that it is sponsored by the chairmen of the major Back Bench committees on finance, employment, trade and industry, small businesses and European affairs?

Mr. King: I am aware of my hon. Friend's close interest in this matter and of the early-day motion. We are in the consultation period at the moment, which will close at the end of the month. We shall then give the earliest possible announcement of our decision.

Mr. Evans: Will the Secretary of State acknowledge that the attitude of most Tory Members who call for the abolition of wages councils, particularly those such as his hon. Friend the Member for Bridlington (Mr. Townend), results from the expectation that wages in those sectors will fall, even though the people covered by wages councils' awards are among the lowest paid in the country? Does that not sum up the present mean and savage attitude of the Tory party towards ordinary hard-working people?

Mr. King: There is a much more fundamental problem, which the hon. Gentleman must be prepared to address. In certain instances it can be demonstrated that wages councils keep down rather than put up wages, and I shall be happy to explain that point to the hon. Gentleman. In other sectors there is no doubt that it has led to the loss of jobs and job opportunities. The House must consider carefully whether it can stand aside from reform or abolition if that would lead to a substantial increase in jobs.

Labour Statistics

Mr. John Fraser: asked the Secretary of State for Employment how many people, including school leavers, are now unemployed in Lambeth; and how many of them are black.

The Parliamentary Under-Secretary of State for Employment (Mr. Alan Clark): On 11 April 1985 the number of unemployed claimants, including school leavers, in the London borough of Lambeth was 25,986. A breakdown of unemployment by ethnic origin at local level is not available.

Mr. Fraser: That figure, which is an increase on last month's, is disgraceful. Can the Under-Secretary recall the Minister telling us last month that one of the reasons for the loss of job opportunities in Lambeth was high rates? Bearing in mind that rate capping will lead to the loss of 1,500 to 2,000 jobs, is he calculating that there will be a net gain in jobs as a result of rate capping?

Mr. Clark: The hon. Gentleman represents a constituency in which the council has doubled the rates over the past two years, so he would do better to stay off

that subject. As he knows, over the past year both vacancies and placings have risen by as much as 18 per cent. in his constituency.

Mr. Rowe: Is my hon. Friend aware that in Lambeth during the past 10 years the number of members of the chamber of commerce has fallen by more than half, in direct proportion to the increase in rates?

Mr. Clark: My hon. Friend's figures show the decline in the number of small businesses and the fact that employment now depends on the public corporate sector and on the service industries.

Ms. Clare Short: asked the Secretary of State for Employment what are the current numbers of people who have been unemployed for over 12 months.

Miss Maynard: asked the Secretary of State for Employment what are the numbers of people under the age of 25 years who have been unemployed for over 12 months.

Mr. Alan Clark: On 10 January 1985 a total of 1,316,000 claimants had been unemployed for more than one year in the United Kingdom. The number of claimants under 25 years of age who had been unemployed for more than one year was 365,000.

Ms. Short: Does the Minister understand, or care, that those 1·3 million people are suffering the most brutal effects of the Government's deliberate high unemployment policy? They suffer real poverty, because the Government insist that they should live on short-term benefits and will not pay the long-term rate of supplementary benefit. We know from studies that they suffer a high incidence of family break-up, mental illness and suicide. Do the Government suggest that their recent paltry expansion of the community programme is an adequate response to their needs, when it will offer part-time, temporary work at low wages, and then throw the vast bulk of those people back into unemployment? They want real, permanent jobs.

Mr. Clark: The considerable expansion of the community programme by 100,000 places has been widely welcomed. The hon. Lady must face the fact that our policy is to match needs and resources. The proportion by which that is done is a matter for debate, but the Government's approach to the problem was recently endorsed by our partners at the economic summit. Their unemployment is increasing faster than ours.

Mr. Forman: Since a disturbing proportion of the long-term unemployed have been out of work for more than three years—the estimate is about 430,000 do my hon. Friend and the Department intend to make special new efforts to direct programmes to their needs, especially is the area of training and re-training?

Mr. Clark: We shall consider all possibilities. My hon. Friend published an interesting pamphlet on the subject. However, it is impossible to escape the fact-that resources are limited and that the Government already spend £2 billion on training and employment measures. If my hon. Friend believes that that total should be increased, he has only to make representations to us.

Miss Maynard: Does the Minister agree that one of the worst scandals is the number of young people who are long-term unemployed? Is he aware that 1·3 million 18 to


25-year-olds are on the scrap heap, that a quarter of those have been unemployed for 12 months, and that nearly half of them have not had jobs since they left school? When will the Government change their policy and give youngsters some hope and the opportunity of making a positive contribution to society by having real jobs?

Mr. Clark: I understand the hon. Lady's indignation, but I must tell her that the figures from her constituency show that the overall percentage of young unemployed has fallen during the past year, as has the number of youngsters aged under 18 in long-term unemployment.

Mr. Lyell: Is not one of the significant aspects of the community programme and other cost-effective programmes, such as the voluntary projects programme, that once people get into work in such programmes their chances of moving to mainstream employment are much better? Therefore, will my hon. Friend encourage further programmes of work in the community, such as helping the frail elderly, so that people may move from such useful employment back into mainstream work?

Mr. Clark: My hon. and learned Friend is entirely right. The scope and complexity of the schemes are being expanded. More than 61 per cent. of participants are aged under 25, and 34 per cent. are aged under 21.

Mr. Kennedy: Given that the Government are fond of claiming that part of the problem of increasing unemployment is people pricing themselves out of work, will the Minister comment on a recent inquiry, sponsored by the Highlands and Islands Development Board, which showed that average earnings in my part of Scotland were between 5 and 10 per cent. below the national average? As unemployment has more than doubled there, where does that leave the Government's economic theory?

Mr. Clark: It is natural that wages should vary from one region to another. The Government have no responsibility for regional variations in wage levels.

Mr. Roger King: Does my hon. Friend agree that one way not to help the unemployed is to indulge in knocking our own products? Will my hon. Friend join me in condemning the Opposition's attitude of throwing into doubt BL's future as a result of scurrilous rumour-mongering that 5,000 jobs in my constituency are at risk, simply because BL will not receive the money for which it has not actually asked?

Mr. Clark: My hon. Friend has highlighted the key factor in reducing the total number of unemployed, which is that British goods should be of the right quality and at the right price to expand production.

Mr. Allan Roberts: Will the Under-Secretary of State come to Bootle to meet the long-term unemployed? Bearing in mind that 30 per cent. of active males in Bootle are unemployed, will he explain to them why, in an area where wages are lower than anywhere else in Britain, and where the metropolitan district council has set the lowest rates in the country, unemployment is still increasing?

Mr. Clark: The reasons have been highlighted in earlier questions. Real jobs will not exist if British manufacturers do not produce the goods to fill their order books.

Training Workshops (Genesis Programme)

Mr. Nicholas Baker: asked the Secretary of State for Employment if he will make a statement about the Genesis programme for training workshops launched by the Manpower Services Commission.

The Minister of State, Department of Employment (Mr. Peter Morrison): The Genesis programme seeks to explore the potential for job creation and revenue generation in training workshops and information technology centres.

Mr. Baker: Does my hon. Friend agree that giving training workshops a more commercial approach in this way has great implications for YTS generally? Will he attend the launch of this scheme today? Will he also expand funding for it in the future, because that would be a great way of producing new jobs?

Mr. Morrison: I agree with my hon. Friend that this is precisely the enterprise ethic that we want to encourage in both information technology centres and training workshops. My hon. Friend will be glad to hear that I shall attend the launch later today.

Mr. Campbell-Savours: Does Genesis receive support from the European Community social fund? In the light of the most recent changes in the allocation rules and the fact that Britian will lose, will the Minister come forward with additional moneys from other sources to compensate for the loss of individual schemes?

Mr. Morrison: As the hon. Gentleman will realise, the premise of his question is incorrect. We are pointing out to the European Community social fund that its rules have not changed and neither have ours. Therefore, there is no loss at this stage on which the hon. Gentleman can base his premise. The Genesis programme is funded by YTS money and, therefore, it does not receive money from the European Community social fund on the margin.

Trade Unions (Ballots)

Mr. Nicholls: asked the Secretary of State for Employment if he will introduce legislation to require that elections for trade union officers take place only by independently supervised ballots.

The Parliamentary Under-Secretary of State for Employment (Mr. Peter Bottomley): The provisions of part 1 of the Trade Union Act 1984 on trade union elections come into effect on 1 October 1985. The legislation will for the first time introduce stringent safeguards concerning, for example, secrecy, freedom from intimidation and malpractice.

Mr. Nicholls: If, as with the Transport and General Workers Union affair, it becomes clear—even within the largest trade unions—that the trade union movement cannot be trusted to conduct fair and independent elections, will my hon. Friend concede that our legislation might have to go further? Will he ensure that those elections take place under independent supervision?

Mr. Bottomley: I think my hon. Friend will accept that independent supervision would virtually rule out workplace ballots, which have a record of far higher participation than postal ballots. I think that every hon. Member would agree that it is up to the trade unions to


ensure that their election procedures develop the trust and confidence that their members expect and that trade union leaders need if they are to carry any credibility.

Mr. Haynes: Is not this response in relation to ballots for trade union officers a bit thick, coming as it does from the Tory Benches? Is the Under-Secretary of State aware that a fair amount of fiddling in the election of Conservative university students has gone on, especially at Durham, not many years ago?

Mr. Bottomley: The answer to the hon. Gentleman's first question is no. I do not have enough information to comment on his second question.

Mr. Leigh: Would my hon. Friend be somewhat worried if people voting in workplace ballots were being handed so-called branch recommendations telling them to vote for candidates which did not mention the fact that they were all members of the Communist party, as has been happening this week in the Civil and Public Services Association elections? Does that not prove the need for independently supervised secret postal ballots?

Mr. Bottomley: It demonstrates the need for moderates to get themselves organised and put up for election. The interesting point about the election to which my hon. Friend referred is that there were three slates of candidates. It will be interesting to see who won.

Mr. Nellist: Given the Minister's and his party's touching, if bogus, concern for democracy, when will he legislate for or promote the introduction of democracy into the Tory party for the election of its chairman or leader, or for the election of newspaper editors?

Mr. Speaker: Order. The question relates to trade union officers. I do not believe that any of the people mentioned by the hon. Member are trade union officers.

Mr. Robert Atkins: Does my hon. Friend recall that the statement made by the hon. Member——

Mr. Nellist: rose——

Mr. Speaker: Order. The hon. Member for Coventry, South-East (Mr. Nellist) has been here long enough and is ingenious enough to get his question in order. None of the officers whom he mentioned has anything to do with trade unions.

Mr. Nellist: Consider the——

Mr. Speaker: Order.

Mr. Atkins: Is my hon. Friend aware that the legislation which comes into force on 1 October is some of the legislation that the hon. Member for St. Helens, North (Mr. Evans), supported by the deputy leader of the Labour party, said would be repealed following the election of a Labour Government? Does he not think that that is a ridiculous state of affairs?

Mr. Bottomley: Yes, Sir. The Opposition are likely to discover that they will have to change their tune. The evidence shows that almost without exception trade union members want the chance to take part in free and fair elections held without malpractice and intimidation, and with a fair choice of candidates.

Mr. Penhaligon: Does the Minister believe in mass ballots, or, If they take place without independent supervision and scrutiny, that they can ever be above suspicion?

Mr. Bottomley: The hon. Gentleman might consult some of the other members of the alliance, who cheerfully voted against such proposals when they were first put forward. We need to strike the right balance between improved participation and ensuring that election procedures are not just fiddle-proof but incompetence-proof.

Mr. Greenway: Is my hon. Friend aware that I have seen the membership cards of many members of the Transport and General Workers Union in my constituency which were stamped "GS" last June to show that they had voted in the ballot for a new general secretary, although they had never seen a ballot paper or signed or voted? That is something that must be tackled. Will my hon. Friend throw the matter straight back to those members of the Labour party who ask "Where is the evidence"?

Mr. Prescott: The hon. Gentleman should take it to the TGWU if that is his attitude.

Mr. Greenway: I have done that.

Mr. Bottomley: If I may answer, rather than the hon. Member for Kingston upon Hull, East (Mr. Prescott), it is because of such queries that the TGWU has decided to re-run the ballot. My hon. Friend should advise his constituents to take up the matter with TGWU headquarters. I know that Moss Evans wants to investigate any such complaints.

Mr. Skinner: Does the Minister understand that the next Labour Government will have every justification for repealing the laws on trade union ballots and bringing them into line with doctors, lawyers and those sponsored members of the Liberal party and the SDP who are backed by £188,000 from the British School of Motoring?

Mr. Bottomley: No, Sir. It is important to ask ordinary trade union members their views and the procedures that they want. Those unions which have procedures which are above reproach are those which have the greatest support of their members.

Labour Statistics

Mr. Blair: asked the Secretary of State for Employment what are the present numbers of people unemployed; and what were the figures for the same month in 1979.

Mr. Nellist: asked the Secretary of State for Employment what are the current numbers of people unemployed; and if he will make a statement.

Mr. Tom King: On April 1985 the total number of unemployed claimants in the United Kingdom was 3,273,000. The estimate for the same month in 1979 was 1,261,000.

Mr. Blair: Do not those record jobless figures make a mockery of the Government's claim that the economy is recovering? Is the Minister aware that youth unemployment in parts of my constituency is now over 50 per cent.? When will he realise that words about caring, without action to back them up, merely add the insult of insincerity to the injury of mass unemployment?

Mr. King: The hon. Gentleman will note that the figures appear the very day after the best forecast from the CBI for many years. There is a startling improvement in


optimism in industry, an indication that the loss of jobs in manufacturing may be coming to an end, and there are encouraging figures for the creation of new jobs. We still face very real difficulties, especially in areas such as that represented by the hon. Gentleman. However, we need to see both the employment and the unemployment figures in perspective.

Mr. Nellist: Does the Secretary of State not realise that we cannot feed unemployed families on forecasts? They need money from a job. As the figures which the Secretary of State has announced today show a trebling of unemployment during the past six years, does he still hold to the assertion that we are in the fifth successive year of economic growth? What effect on the long-term unemployed does he expect from the proposal to abolish the wages councils? How does lowering the wages of women and youths in hairdressing and other retail trades—wages of £60 or £70 a week—help the nearly 5 million people who cannot get a job in this country?

Mr. King: On the latter point, the hon. Gentleman will have heard the exchanges and will know that there is general agreement that abolition or reform of wages councils could lead to the creation of a significant number of new jobs. The issue that must be decided is whether that is an appropriate way to proceed, which is why we are holding consultations on that matter.
Growth is the vital component if we are to make a real impact on the level of unemployment. I welcome the current forecast that this year we shall have the fastest growth rate in employment of any country in western Europe. In addition, we now have more investment in manufacturing industry as well as in service industries. Obviously, that needs to proceed faster if there is to be a real impact on employment.

Mr. Adley: While accepting that the sneers of the Opposition at the number of new jobs being created are inevitable and predictable, may I ask whether my right hon. Friend has noted that they appear to be running a campaign implying that part-time employment is not only undesirable but anti-social? Does my right hon. Friend agree that, in a modern family, part-time jobs fulfil many people's aspirations? Will he do his best to ensure that, at least in his Department, part-time employment is regarded as a thoroughly proper, sensible and normal attribution of the figures and the information that he provides to the House?

Mr. King: I certainly accept my hon. Friend's comment. It is true that there have been 600,000 more jobs during the past two years, a significant number of which are part-time. However, that conceals and overlooks the fact that there has also been a substantial increase in self-employment. It is clear that there has been an increase in full-time jobs for men as well as for women.

Mr. Wilson: How does the Secretary of State explain the April unemployment figures running at record levels and in defiance of seasonal trends? Does he not know that 40 years after the ending of the second world war, certainly for most people in Scotland, it would be far better if the initials VE stood for victory in employment rather than victory in Europe?

Mr. King: I do not think that there is one hon. Member who does not wish to see a significant improvement in the unemployment problem at the earliest possible moment.

We are doing better in that respect than, for example, the Socialist Governments of France and Italy, and I hear that in mind when I hear the easy solutions put forward by the Opposition. I accept that we must do better. All our efforts and some of the changes announced in the Budget are directed precisely towards trying to improve the position.

Mr. Holt: Does my right hon. Friend realise that last week there were 1,000 advertised vacancies in the Thames Valley jobcentre, yet in my constituency there were only 18? What is he doing to improve the flow of information between jobcentres throughout the country, and then to assist people to relocate?

Mr. King: I recognise that there are undoubtedly parts of the country where the greatest problems now are skill shortages and the number of vacancies, whereas in other parts, such as my hon. Friend's constituency, the position is far from that. We are taking steps to improve the information flow so that people have the best opportunity of going where there is employment. However, we obviously want to see an improvement in employment throughout the country, which is the real solution to the problem.

Mr. Tom Clarke: Is the right hon. Gentleman aware that 25 per cent. of those unemployed in Coatbridge, in my constituency, have been without work for two or more years and are desperately seeking jobs? Will he discourage his colleagues from referring to the "Why work?" syndrome and accept that that phrase is grossly offensive and adds insult to injury?

Mr. King: That is apposite to what I said when replying to the supplementary question asked by my hon. Friend the Member for Langbaurgh (Mr. Holt), that there are considerable variations in the employment situation in different parts of the country. It is fair to point out that the greatest number of long-term unemployed in Britain are in London and the south-east. That raises problems, bearing in mind the number of vacancies that exist in the area, about whether there are real disincentives to work involved in the "Why work?" syndrome.

Mr. Phillip Oppenheim: Will my right hon. Friend remind Opposition Members of the increase in the number of people of working age in the last five years and the significant contribution that that increase has made to the unemployment problem?

Mr. King: My hon. Friend is correct to cite that point. Something under 1 million has been the increase in the population of working age. It is clear from the figures that in the last year alone the increase in the labour force was 480,000. We created about 340,000 more jobs, but because the figure for the increase in working population was greater, we continued to have the rise in unemployment.

Mr. Janner: Is the right hon. Gentleman aware that the question asked by my hon. Friend the Member for Sedgefield (Mr. Blair) was not how many claimants there were for unemployment benefit but how many people were unemployed? When will the right hon. Gentleman admit that there are about 4 million people now looking for jobs?

Mr. King: The hon. and learned Gentleman knows—because we have discussed this subject in another forum—that the latest academic study of which l am aware demonstrates that one can, on a perfectly sound


basis, argue that the present level of unemployment is between 1·7 million and 4·1 million, depending on what assumptions one uses. If the hon. and learned Gentleman is saying that unemployment is too high, he need not waste his breath, because I agree with him, and all our efforts are directed towards its reduction.

Mr. Spencer: Does my right hon. Friend agree that in 1979 we inherited rampant inflation and rampant trade unionism, that only by conquering those twin evils have we created an additional 600,000 jobs and that if we were to surrender to those evils, as the Labour party would wish, the results would be disastrous for employment?

Mr. King: Successive industries during the 1960s and 1970s completely lost their competitive edge because they were over-manned and unable to compete in world markets. It has been a major challenge to fight back from that situation. The latest forecast—I make no apology for quoting again the CBI survey—is the most optimistic for a decade in many important respects.

Mr. Prescott: In the pursuit of truth, will the Minister recognise that the figure that he has announced from the Dispatch Box is the highest recorded level of unemployment for 40 years, and even for this century? Does he accept the estimate made by the unemployment unit under Professor Sinfield, that the figures, because of the new way in which they are collated, underestimate the real total by 400,000? In view of the massive unemployment that six years of Tory policies have created, will the right hon. Gentleman consider joining the Secretary of State for Energy in asking for a change in Government policies?

Mr. King: My answer to the first part of the hon. Gentleman's supplementary question, dealing with the figures, is the same as that which I gave to his hon. and learned Friend the Member for Leicester, West (Mr. Janner)—[Interruption.]—in deciding whether they should or should not be plus 400,000. Far more important than arguing about the precise statistic is to accept that it is too high.

Mr. Prescott: Is it a record——

Mr. King: If the hon. Gentleman keeps shouting his first question when I am trying to answer his second, he is not likely to get answers to either.
The answer to his first question is yes, in April. I have no doubt that the situation is the same in France, Germany and Italy.

Mr. Prescott: Is it a record? Twister.

Community Programme

Mr. Knox: asked the Secretary of State for Employment how many people are in community programme places in Staffordshire.

Mr. Peter Morrison: On 29 March, the latest date for which figures are available, there were 2,550 people working on the community programme in Staffordshire.

Mr. Knox: Does my hon. Friend agree that although community programme places are very welcome, they are no substitute for real jobs? When does he expect an upsurge of real jobs in Staffordshire?

Mr. Morrison: I am glad that my hon. Friend believes that the community programme is worth while, and I am

sure that he welcomes the near doubling of the number of places to be made available in Staffordshire. He will also be aware that about 100,000 people were placed in jobs in Staffordshire during the past year. That is an increase of 8 per cent., which cannot be bad.

Labour Statistics

Ms. Harman: asked the Secretary of State for Employment what are the current numbers of women registered unemployed; and what were the numbers for April 1979.

Mr. Alan Clark: On 11 April 1985 the number of women claiming unemployment benefit was 1,002,000 compared with an estimated total of 328,000 in April 1979.

Ms. Harman: Will the hon. Gentleman tell the House whether he believes that women have absolutely the same right to work as men, including women who have small children and are married to men who are in work? Do women also have an absolute equal right to join training schemes in the bogus Government programmes?

Mr. Clark: Yes, of course I agree with the hon. Lady. Women account for 40 per cent. of the civilian work force, but on a majority of our training schemes, inluding YTS and TVEI, they represent over 40 per cent. of the participants.

Mr. Stokes: While considering the number of women who are unemployed, will my hon. Friend also consider the number of women who are employed today, and especially the vast increase in the number of married women who are employed?

Mr. Clark: My hon. Friend is entirely right. During the six years around which the hon. Lady couched her question, the number of women in employment has stayed steady at well over 9 million. In the past year the number of women in full-time jobs increased by 14,000 and of those in part-time work by nearly 200,000.

Mr. Ashton: Is the Minister aware that in my constituency employment among women has trebled? Is he also aware that at the last general election there was a Labour majority in the constituency of 3,500, whereas on last Thursday's results it would have been 11,500? Does that trend not show that massive unemployment is pending for Conservative Members? What will the Minister do about that?

Mr. Clark: Doubtless the hon. Gentleman will use that question in whichever column he is currently writing for the national newspapers. Whatever it may be in the hon. Gentleman's constituency, the national unemployment rate for women is some 2·5 per cent. below that for men.

Mr. Currie: Does my hon. Friend agree that it is a matter not of rights but of obligations? These days, when Mrs. Average takes her son to get a job, it is she who gets the job rather than him. Does not that situation reflect a lack of flexibility and of skill, and the high cost of employing young people today?

Mr. Clark: Certainly there are many occupations in which the special skills and dedication that they can contribute make women preferable as employees.

Ms. Richardson: Does the Minister not understand that women who are seeking work as of right are being


pushed into part-time jobs because only part-time jobs are available? In changing the rules for the community programme, which virtually exclude women, and in cutting the number of public sector jobs, which also affects women, are not the Government reducing women's chances of employment? Is it not a disgrace that, of all the women unemployed in Europe, 40 per cent. live in this country?

Mr. Clark: I do not think that the hon. Lady is right about part-time employment. Many women prefer part-time employment and contribute to a valuable sector in the economy. As for benefit entitlement on the community programme, the hon. Lady knows that the decision was based on proper priorities. Places should be restricted to those receiving benefit.

Long-term Unemployed Persons

Mr. Terry Davis: asked the Secretary of State for Employment if he will make a statement on the Government's programme for the retraining and employment of the long-term unemployed.

Mr. Peter Morrison: The opportunities for all long-term unemployed people are set out in the White Paper "Employment-The Challenge for the Nation". More than 375,000 long-term unemployed people a year will be helped by our expanded community programme and the other employment and training measures.

Mr. Davis: Did the Minister not hear the admission by his hon. Friend the Under-Secretary of State for Employment earlier that more than 1,300,000 people have been unemployed for more than 12 months? Will not the community programme cater for less than a third of those people, and will not full-time training decline as a result of the closure of skillcentres such as those at Castle Bromwich and Redditch? Are not the Government unable to cope with unemployment and skill shortages on the scale that they have created?

Mr. Morrison: I am sure the hon. Gentleman realises that the number of adults being trained will be doubled and that the number of long-term unemployed on the community programme will be virtually doubled. That is a positive response, which I hope he welcomes.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Alton: asked the Prime Minister if she will list her official engagements for Tuesday 7 May.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today.

Mr. Alton: What explanation has the Prime Minister for last Thursday's unemployment figures, for the speech of her right hon. Friend the Secretary of State for Energy and for the massive thumbs down given to her by alliance voters? Will she again be offering the excuse that she was out of the country?

The Prime Minister: I notice that the alliance party does not seek a majority; it seeks to hold a balance, so that it has a veto—hardly a democratic course of action, if I

might say so. I notice also that the hon. Gentleman referred to the speech of my right hon. Friend the Secretary of State for Energy. With regard to unemployment, my right hon. Friend said:
To obtain growth, we must obtain the right relationship between pay and investment and productivity. An inflationary wage round unlinked with productivity would do immense damage to Britain's economic opportunity.
I wholly agree.

Sir Edward Gardner: In the light of my right hon. Friend's recently expressed concern, shared by the President of the United States, about the alarming growth of international drug traffic, will she assure the House that she will give the highest priority to means of defeating the threat of having diverted to this country and other European countries a flood of cocaine from a saturated American market?

The Prime Minister: I am grateful to my hon. and learned Friend. When we had that discussion on drugs, it was clear that almost every country was deeply concerned about the effects on young people and deeply concerned to ensure that we could do more to trap drug traffickers and to dissuade young people from taking drugs. We all agreed to set up an expert committee to see what further could be done. My right hon. and learned Friend the Home Secretary, my right hon. Friend the Secretary of State for Social Services and the Treasury are all concerned. We are determined to do as much as we can to rid this country and others in Europe of this vicious trade.

Mr. Kinnock: As someone who told us on Sunday that she wants to get rid of class divisions, is the Prime Minister aware that there are 2,054,000 more people unemployed, 2·1 million more people on supplementary benefit and 140,000 more people having to claim family income supplement than there were on the day when she became Prime Minister six years ago? In view of that, can the right hon. Lady tell us what independence she thinks those millions of people enjoy while she dreams her idle dreams of a classless society?

The Prime Minister: May I also point out that there are 1·8 million more owner-occupiers since 1979, a policy which was fought tooth and nail by the Labour party? There has been a dramatic extension of share ownership, as shown by the 1·7 million people who now hold shares in British Telecom. There has been a dramatic increase in the number of employee share schemes, an increase in the number of assisted places in schools, and we have dramatically extended the rights of trade union members to a secret ballot, which not only would the right hon. Gentleman never have insisted upon, but which he did everything to fight.

Mr. Kinnock: I hear what the Prime Minister says about share ownership and much else. Does she agree with the view expressed by the Secretary of State for Energy last Friday that people are more than consumers, and on that basis will she now, even at this late hour, reverse her policies of change in the welfare state, which will so greatly disadvantage so many people? Why does she not actively work, if she is interested in independence, to stop unemployment policies which have brought more people into state dependence in six years than ever before?

The Prime Minister: I am glad that the right hon. Gentleman referred to the speech of my right hon. Friend the Secretary of State for Energy. I notice that my right hon. Friend said:
The Labour party, whilst frequently interested in the economic discontentment, appear to be totally unwilling to give the worker the higher status and the higher privilege he seeks.
He continued:
They are against workers in council houses becoming owner-occupiers, they are against workers having freedom of choice for their children in education. To them it appears that workers are but fragments of a block vote at a Labour party conference and not people whose responsibility and freedoms need to be in their own hands rather than in the hands of a socialist politician or the bureaucrat.
Thank you very much, Mr. Speaker. I am grateful to the right hon. Gentleman for letting me quote from my right hon. Friend's speech.

Mr. Andrew MacKay: asked the Prime Minister if she will list her official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. MacKay: If, during her busy day, my right hon. Friend can find a moment to look at last week's county council elections, will she reflect on the fact that in Berkshire, where we had experienced a hung council, which led to a Lib-Lab pact and a rate increase of over 27 per cent., there was a major swing to the Conservatives and we regained control?

The Prime Minister: I am grateful to my hon. Friend for pointing out that when there is a Lib-Lab pact there are high rates, high tax and high spending policies. I think that that fact augurs well for the next local elections.

Mr. Dubs: asked the Prime Minister if she will list her official engagements for Friday 7 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Dubs: Is the Prime Minister aware that, of the world's leading 11 advanced industrial countries, eight have a lower rate of unemployment than we have, and that every one of these 11 countries is showing lower increases in inflation than we are? Indeed, we are the only one that has an increase, whereas the others are going down. Does this not add up to the fact that her ex-Cabinet Ministers, her Cabinet Ministers, her Back Benchers and the electorate are saying no to her economic policies because Britain is not working?

The Prime Minister: Some of those countries—all of them, I think, apart from United States and Japan—are afflicted with unemployment; some of them, as the hon. Gentleman has indicated, higher than we have. Some of the others have learnt some of the lessons, in that their unit labour costs are going down just at a time when unit labour costs are rising in this country. That has its effect on unemployment. I might point out to the hon. Gentleman that the proportion of the population of working age in work is higher here—66 per cent.—than in West Germany, higher than in France, higher than in Italy and equal to that in the United States.

Mr. Speller: asked the Prime Minister if she will list her official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Speller: Is my right hon. Friend aware that the May day holiday is a total flop in terms of British tourism? Will she consider helping our most successful industry by amalgamating the Spring bank holiday and the May day bank holiday to make one worthwhile west country break?

The Prime Minister: We went out to consultations on just such a scheme in 1982 but opinion was very divided and there was clearly no case at that moment for changing the present arrangements.

Dr. Owen: Does the Prime Minister agree that one of the lessons of last Thursday's elections was that people do not like absolute power exercised—[Interruption.]

Mr. Speaker: Order. I am trying to help Back Benchers to get to their questions.

Dr. Owen: Does the Prime Minister recognise that one of the lessons of last Thursday was that people do not like absolute power exercised by minorities, that they do not like ideology and dogmatism and that they are becoming increasingly fed up with the the Prime Minister's own hectoring style? Far from—[Interruption.] If we always have to make ourselves heard above a hubbub [Interruption.]

Mr. Speaker: Order. All Members have to make themselves heard.

Dr. Owen: Does the Prime Minister realise that, having lost 750,000 votes at the last election, she now exercises power with the support of a minority of the population of this country?

The Prime Minister: As for the right hon. Gentleman's comments about a hectoring style, he has become the arch example of that very thing. I can think of no better description of the style that he has adopted. As for seeking power, the right hon. Gentleman is seeking almost absolute power on a smaller minority.

Mr. Patrick Thompson: Will my right hon. Friend take time today to consider the fact that in the past few days there has been hard evidence that industry and employment in Norwich have been adversely affected by the long drawn-out and futile miners' strike? Does she agree that in those circumstances it is hyprocisy for the Opposition to pose as the protectors of jobs?

The Prime Minister: I am grateful to my hon. Friend. Yes, employment was adversely affected, not only in the mining industry but among all the suppliers to the industry and many people are now out of a job as a result of that strike when they would otherwise have been in a job today. My hon. Friend is right. Strikes destroy jobs.

Mr. Freeson: Is the Prime Minister aware that the Foreign Office has been keeping files on Klaus Barbie and Dr. Mengele and has refused to release those files? In this week of VE celebrations, does the right hon. Lady agree that it would be appropriate to instruct the Foreign Office to release those files? What is it hiding?

The Prime Minister: As the right hon. Gentleman knows, we release files whenever we can to assist either in trials or in commissions of inquiry. That would be our policy, but there are occasions when for very good reasons we cannot do so.

Mr. Dover: asked the Prime Minister if she will list her official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Dover: Following the events of last Friday, what assurance can my right hon. Friend give the House that the Government will allow enough time for the passage of the Unborn Children (Protection) Bill promoted by the right hon. Member for South Down (Mr. Powell)?

The Prime Minister: I understand my hon. Friend's concern about that Bill. I know that the Bill arouses strong feelings in the House, and I also feel strongly about it, but it has been the practice that the Government do not give Government time for private Members' Bills. Therefore, I cannot offer my hon. Friend any great comfort. My hon. Friend will doubtless also consult my right hon. Friend the Lord Privy Seal, but I cannot give him any hope that he will get a different answer.

Mr. Merlyn Rees: Will the Prime Minister tell the House whether there would he a place for Tory wets in her version of a classless society?

The Prime Minister: For a good climate one needs drys and wets.

Mr. Gerald Howarth: asked the Prime Minister if she will list her official engagements for Tuesday 7 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Howarth: Is my right hon. Friend aware that there will be great disappointment that the early negotiations to reduce trade barriers were blocked last week by the French? Will she assure British industry that she will continue to press on our major trading partners the urgent need to deal with this grave problem, which was highlighted by the visit to Japan of our right hon. Friend the Secretary of State for Trade and Industry?

The Prime Minister: The only one difference of opinion on trade between France and the other countries was not that France was anxious to keep protectionism—she agrees that we must do everything possible to reduce protectionism—but that she was not prepared to put her name to fixing a date for a new round of GATT. The rest of us felt that we should give a lead. France put her name to all other aspects of the communiqué about reducing protectionism.

Economic Summit (Bonn)

The Prime Minister (Mrs. Margaret Thatcher): With permission, Mr. Speaker, I shall make a statement about the economic summit which I attended in Bonn, accompanied by my right hon. and hon. Friend the Secretary of State for Foreign and Commonwealth Affairs and my right hon. Friend the Chancellor of the Exchequer.
Heads of State or Government of the United States, France, West Germany, Italy, Canada and Japan were present, accompanied by their Foreign and Finance or Economic Ministers, together with the President of the European Commission.
I have placed in the Library of the House copies of the economic declaration and of the political declaration to mark the 40th anniversary of the end of the Second World War.
I shall deal first with the political issues. As countries which once fought each other bitterly, we recalled the benefits of reconciliation and of 40 years of co-operation, and pledged ourselves to their continuance. We welcomed the opening of negotiations in Geneva on the reduction of nuclear arms, expressed our appreciation of the positive proposals of the United States, and urged the Soviet Union to act positively and constructively to achieve significant agreements.
Foreign Ministers discussed the middle east, southern Africa and central America. They condemned the continuing, brutal occupation of Afghanistan by Soviet troops, and of Cambodia by Vietnam.
On Britain's initiative we had a discussion of the growing problems posed by drugs, and we agreed to set in hand work on further co-operative measures to combat the vicious trade, which is the cause of so much human suffering. We also reaffirmed our determination to strengthen further the co-operation against terrorism agreed at the London summit last year.
On economic matters, the discussion and the communiqué reflected the similarity between the approaches and policies of all seven Governments. We recognised the further progress since our last meeting in keeping down inflation and strengthening the basis for economic growth. We also welcomed the fact that the recovery has begun to spread to the developing world.
Nevertheless, we recognised that our countries still face important challenges. Among other things we need to strengthen the ability of our economies to respond to new developments; to increase job opportunities; to combat protectionism; and to improve the stability of the world monetary system.
To sustain non-inflationary growth and to create higher employment, we agreed, first, to consolidate and enhance the progress made in bringing down inflation; and, secondly, to follow prudent and, where necessary, strengthened monetary and budgetary policies with a view to stable prices, lower interest rates and more productive investment. Each of our countries will exercise firm control over public spending in order to reduce budget deficits when excessive, and, where necessary, reduce the share of public spending in gross national product.
Thirdly, we agreed to work to remove obstacles to growth and encourage initiative and enterprise so as to release the creative energies of our peoples, while maintaining appropriate social policies for those in need.
Fourthly, we agreed to promote greater adaptability and responsiveness in all markets, particularly for the labour market.
Fifthly, we agree to encourage training to improve occupational skills, particularly for the young.
Building on those common policies, each country indicated its specific priorities. For example, President Reagan emphasised his determination to achieve a substantial reduction in the United States' budget deficit. The Japanese Prime Minister undertook that his Government would make further progress in deregulating financial markets, promoting the international role of the yen, facilitating access to markets, and encouraging growth in imports. The United Kingdom will continue to work to reduce inflation, keep public spending under control, promote the development of small business and advanced technological industries, and encourage initiative and enterprise in the creation of new job opportunities.
On international trade, we agreed that protectionism does not solve problems, it creates them; that further progress in relaxing and dismantling trade restrictions is essential; that a new round of multilateral trade negotiations should begin as soon as possible, with the broadest possible participation; and that the preparations for the new round should begin with a meeting of GATT officials before the end of the summer. With the exception of France, we were agreed that the new GATT round should start in 1986. France was not prepared to commit herself to a date.
The discussions on international monetary questions, which began after the Williamsburg summit, will be completed next month, when the Group of Ten meets in Tokyo. It will put forward proposals for discussion in the interim committee of the IMF at its October meeting. We endorsed the case-by-case approach to the debt problems of the developing countries set out at the London summit.
We expressed our particular concern for the plight of African peoples suffering from famine and drought. While acknowledging the very substantial assistance provided not only by Governments but by private organisations and individual citizens, we instructed experts to report to the Foreign Ministers of the Seven at the end of September with proposals for further measures which might be necessary.
Particular concern was voiced about the practical distribution of food aid which has been so generously given, and the need for long-term polices of good husbandry to avoid creating more desert land. We also called on the Soviet Union and other Communist countries to assume their responsibilities in helping to relieve the suffering caused by famine and drought.
What was impressive in the summit discussions was the conviction of all represented there that lasting job opportunities can be created only if we maintain sound financial policies and open markets and remove disincentives and unhelpful regulations to foster a climate of more vigorous enterprise and initiative.
As the communiqué said,
By pursuing these policies we will not only address our domestic problems, but at the same time contribute to an enduring growth of the world economy and a more balanced expansion of international trade.

Mr. Neil Kinnock: First, I warmly commend the collective pledge made by the powers at Bonn actively


to continue the reconciliation and co-operation which have benefited all countries in the past 40 years, whether they were former allies or former enemies.
Secondly, I support the Prime Minister in her continuing efforts to encourage international co-operation to combat drug trafficking and terrorism.
Thirdly, I warmly endorse the decision of the Prime Minister and five of her colleagues not to join President Reagan in his vindictive and dangerous policy of imposing a complete economic embargo on Nicaragua.
Fourthly, I must record deep disappointment that on economic issues the Bonn summit turned into yet another sit-tight summit. How many times will the Prime Minister register the need for monetary reform, the reduction of social inequality, the promotion of growth and trade, helping the poorest countries, and much else, and then, having recorded those challenges, dodge away from doing anything effective in any of those areas?
Specifically, does the Prime Minister recall that after the London summit, she told us that the summit seven, including Britain, would
encourage multi-yearly rescheduling
of the debts of poor countries, and that they would
seek to maintain and wherever possible increase the flow of official aid to developing countries, particularly the poorest"?
Against that background, why is it that in the ensuing 12 months the Governments of the summit countries have left rescheduling almost entirely to commercial institutions and have borne hardly any of the responsibilities themselves? Why is it that in that 12 months the British Government, under the right hon. Lady's leadership has, far from maintaining or increasing the flow of aid, cut the flow of official aid to the poorest countries in developing parts of the world?
The Prime Minister has told us that President Reagan emphasised his determination to achieve a substantial reduction in the United States' budget deficit. As the condition of the United States economy has been responsible for half of the growth rate in European economies in the past year, what effect does the right hon. Lady think the rapid reduction of the United States' budget deficit will have on our economy if there is no simultaneous compensating expansion of European economies, especially our own?
We have had another do-nothing summit this year. Will the right hon. Lady give us yet another do-nothing year when it comes to fighting unemployment at home and poverty and starvation abroad?

The Prime Minister: I note the strictures of the right hon. Gentleman on all Heads of State or Government, including those who share his political views and not mine. When they are in power, however, they pursue the same economic policies. The difference between them and the Socialists on the Opposition Benches is that a British Socialist Government promise everything, which takes them to the International Monetary Fund, while other Socialist parties, when in power, pursue much more conservative policies, both with a small c and a capital C. They do so because they are realistic. The right hon. Gentleman is extremely critical of his fellow Socialists who are Heads of State and of Socialist Governments.
I am glad that the right hon. Gentleman has welcomed the political statement and the statement on drug trafficking.
We were not asked to join the United States in imposing sanctions on Nicaragua.
The right hon. Gentleman has talked of a sit-tight summit, but I have said that all Heads of State or Government are convinced that the policies that are being followed are the right ones. They will keep down inflation, and unless we try to do that we shall be doing great harm to employment prospects. Over the past year we have introduced the policies that were outlined in the Budget on training and for an increased community programme. These policies have not yet worked through, but they should provide more help to those who would otherwise be unemployed. About 600,000 more jobs have been created in the past six months. Britain is one of the few European countries that is creating more jobs.
There has been one agreement on multi-yearly rescheduling. There have not been more because such agreements require, first, the accord of the IMF. Normally, commercial banks do not lend unless there is agreement with the IMF to change policies, or a good prospect of it. That is the only proven policy to follow when one is lending through the banks other people's money.
We are one of the countries that gives aid priority to the poorest countries, even though these are not always the countries that will give us more jobs at home. Other countries do not always give such high priority in their total aid budgets to the poorer countries.
The right hon. Gentleman referred to the reduction in the United States' budget deficit. As a percentage of gross national product, that deficit is not nearly as high as some think. The net deficit is 4¼ per cent., taking into account the surpluses that are produced by the separate states. We must consider the deficit in terms of the savings ratio. It would be far more advantageous to the world if we all brought down interest rates. That would give us far more sustained expansion than the policy that is now being pursued. We hope that that will be the result of the United States reducing its deficit to something more in tune with its lower savings ratio.

Sir John Osborn: Is my right hon. Friend aware that the sixth parliamentary and scientific conference run by the Council of Europe will take place in Japan at the end of the month? To what extent will Japanese markets be opened up to other countries?
Secondly, what would be the impact of protectionism on our own economy? About 50 per cent. of Britain's GDP lies in imports and exports and a move towards protectionism would not be in our interests nor those of the western world generally.

The Prime Minister: I agree with my hon. Friend that it is much better for countries which rely on exports to try to open up the world's markets than to go for a policy of protectionism. Each and every one of us has some protectionist policies, but most of us felt that it would be far better to take them all to the next round of GATT and to bargain away some of our protectionism for a reduction in other people's protectionism. They would not all go at once, but that would be much better for those of us who depend on world trade. That applies to most developing countries, too.
With regard to the Japanese market, I think that Mr. Nakasone has realised far more than previous Prime Ministers the need to open up Japanese markets. I hope that we shall pursue the point vigorously through the European Economic Community. Some members of the


Community have much tougher limits on the import of, for example, Japanese cars than others. It is quite clear that we cannot go on keeping our markets open unless other countries keep theirs equally open.

Mr. Roy Jenkins: Why does the Prime Minister, who used to be most sceptical and impatient about the value of summits, now appear to be satisfied with one that has almost certainly produced the most flatulent and platitudinous communiqué of the 11 in the series? Can the Prime Minister tell us of one beneficial and constructive thing which she thinks will happen as a result of the summit and which would not otherwise have taken place?

The Prime Minister: I think that this is the first summit in which each country pledged itself to take specific action. I cannot remember a previous communiqué in which each country set out separately what——

Mr. Jenkins: The 1978 summit.

The Prime Minister: The 1978 summit in Bonn was disastrous because it reflated and led to the higher unemployment and some of the higher inflation which followed. I think that the right hon. Gentleman will find that Germany would never follow that course of action. I note that the right hon. Gentleman said that the summit was platitudinous. Platitudes are platitudes because they are true. Therefore, he believes that the economic policy that we set out is true. I am grateful for his support.

Mr. Charles Morrison: Was further aid for population control in African countries considered at the summit? Was reference made to the unhelpful attitude of the American Administration, and was that Administration encouraged to become less dogmatic and more realistic in that regard?

The Prime Minister: We are considering further what best to do about aid to those countries. Particular concern was voiced about it not always being easy to distribute the amount of aid that is given, whether in food or other items such as medicines. We must look further into that. We were also anxious not only to give emergency food aid but to help those countries to develop their agricultural economies so that they might produce better aid for themselves. We are also anxious to help them to get grains which are suitable for dry zone areas and generally to help them in husbandry.
As for the United States, I remember that, at the recent United Nations summit in Geneva on help to the African countries, the United States was extremely generous in her allocation of aid to Ethiopia and Sudan.

Mr. Robert Sheldon: Is the Prime Minister aware that few people expected much from the summit as summits increasingly resemble the futility of the inter-war economic conferences? Will she say more about Japan's trade practices? Is she aware that they increasingly look like economic domination, as they did in 1941, rather than economic co-operation? Should she not have resisted that even more strongly?

The Prime Minister: It was not possible to be stronger than I was on certain aspects of Japanese trade, nor is it possible to be stronger. The right hon. Gentleman is aware

that we have to pursue our trading arrangements with the outside world through the Community. I believe that M. Delors, the President of the Commission, will continue to pursue this matter as vigorously as we would wish.

Mr. Tim Rathbone: My right hon. Friend referred to the discussion about drug trafficking and the misuse of drugs. Will she elaborate further on that subject? Will there be room, on a pan-European and worldwide basis, to have joint activity in the same way that the Government have set up joint activity between Ministeries in this country? Does my right hon. Friend come back from the summit with an awareness of the need for even greater spending, particularly on the education of young people about the threat of this horrible drug trafficking menace?

The Prime Minister: As my hon. Friend knows, there is already some co-operation, between countries, but I believe that it can be stepped up. It is particularly urgent now that there appear to be more supplies of cocaine, and sometimes success in one country in discovering cocaine and destroying it can mean that the cocaine is then directed to a different country. Therefore, we in Europe have to be very wary of what is happening, and do all that we can to stop it coming in.
As my hon. Friend knows, my right hon. and learned Friend the Home Secretary has issued a statement on what we are doing about reducing drug trafficking. He has also made it clear that he expects to introduce legislation to confiscate the assets of those who are convicted of drug trafficking so that, having suffered a prison sentence, they shall not nevertheless still be in possession of the enormous sums that are involved. My right hon. and learned Friend the Home Secretary and the several Departments will co-operate with other countries in doing everything that we can, and if it means more expenditure, we shall have to undertake it.

Mr. A. E. P. Duffy: Is the Prime Minister satisfied that the approach of the summit to economic recovery was sufficiently urgent? Does she recall the recent reminder by Paul Volcker, chairman of the Federal Reserve Board, that over the past two years American expansion and the impact of higher imports were responsible for 70 per cent. of growth against only 40 per cent. of OECD output for the same reasons? Does not the right hon. Lady accept that that era is now ended, for there is unmistakable evidence of slowdown in the United States? Does she not agree with my right hon. Friend the Leader of the Opposition that the most urgent requirement of the summit was to come forward with a set of appropriate and compensating measures?

The Prime Minister: I tried to answer that in part in my reply to a previous question. Certainly last year there was a 9 per cent. increase in world trade. Half of it was attributable to more imports into the United States. As the hon. Gentleman said, that policy could not be sustained. The policy that led to the high dollar and double deficit could not be sustained, which is why, I believe, the President of the United States and Congress will have to take action to reduce the deficit. It would be of more benefit to the world if action were taken to reduce that deficit because of the expected impact on interest rates. It would be more profitable to world expansion to get lower interest rates all round because that is the way to get more


construction and more small businesses developing. If that policy were pursued, it would give a boost to growth. Hitherto, during the past year, there was an unsustained boost through the imports into the United States.

Mr. Patrick Cormack: In view of the fact that welcome reconciliation has presumably led to a much greater increase in mutual trust between nations, does my right hon. Friend think that it is time that Japan was made to bear the proper burden for its own defence? Would not that go a long way towards solving the problems that trouble us all?

The Prime Minister: We have to tackle Japan on an open trading basis. I do not think that it is right for one country to expect others to be open, make enormous profits from their openness, use those profits to undercut them in other markets, and still not take steps either to have home markets open or to redress the balance of trade by making major procurement purchases, which a Government can do, in aircraft and other such things from other countries overseas. My hon. Friend raises another matter—the defence of Japan—which would have considerable political implications. I would be slow to jump to the conclusion that he has reached, although I accept that Japan must take more responsibility for the defence of her maritime coast.

Mr. Tom Clarke: In her statement, the Prime Minister referred to the discussions between Foreign Ministers about the middle east, southern Africa, and central America. Was any progress made in stopping the flow of arms to those regions as well as on human rights?

The Prime Minister: I do not know whether they discussed that subject, but I expect that it came up in relation to one of those countries. As the hon. Gentleman is aware, it is not easy to stop the flow of arms to these regions, and some of the previous efforts have not been successful.

Viscount Cranborne: Apart from a ritual condemnation of the Soviet invasion of Afghanistan, did my right hon. Friend persuade her fellow summiteers of the value of a constructive policy to do something about the problem of that tragic country, particularly as she knows that there is a coherent policy available to her fellow Prime Ministers?

The Prime Minister: As my hon. Friend is aware, the United Nations has been making strenuous efforts to make arrangements that would ultimately result in the withdrawal of Soviet troops from Afghanistan. I am not very optimistic that that prospect will be achieved.

Mr. James Lamond: If the Prime Minister has returned determined to redouble her efforts to make us more efficient, to shake out even more people from the labour market, to cut back on our social services and to try to catch a bigger share of the international market, and all the other leaders have decided to do the same, will we not all be running very fast to stand still in the same place?

The Prime Minister: We have not been quite as successful as some other countries, such as Germany, in securing extra export markets. One of the reasons is that Germany's unit labour costs are below ours and, although it is a high-wage economy, it is also a low-cost economy.

In any event, we are not on a zero sum. There is a good prospect for us to improve our own performance, which can only be done through management and the work force. We are not doing it at the expense of other people, except perhaps at the expense of those who have an enormous trade balance, such as Japan. We have to compete with Germany, France and Japan, and if the hon. Gentleman is not willing to compete, there is no hope for him and his party.

Mr. Michael Fallon: I thank my hon. Friend for raising with the Japanese delegation the disgraceful predatory pricing on the second Bosphorus bridge. Can she reassure me that we shall preserve bridge-building technology in the United Kingdom, and the hundreds of jobs in Darlington that depend upon it? Will she also assure me that everything possible will be done before the contract is signed to persuade the Japanese and Turkish Governments that it is in everybody's interest to ensure that at least the bridge section of this contract can be subcontracted to a British firm?

The Prime Minister: I know that my hon. Friend is as concerned as I am because he, with another of my hon. Friends, came to see me some time ago about the Bosphorus bridge. As he is aware, we were prepared to match the Japanese offer on the bridge, but we could not do it on the roads leading to the bridge. That led to the allocation of the contract to the Japanese. If there is arty hope of our having the subcontracted bridge, I am sure that it will be pursued vigorously.

Mr. Russell Johnston: The Prime Minister said that the middle east was discussed. Was there any sign of a new initiative from the United States? Does she agree that there is an urgent need for new initiatives if the situation in the middle east is not to deteriorate further?

The Prime Minister: As the hon. Gentleman will be aware, Ambassador Murphy has been in Jordan discussing with King Hussein the possibility of setting up a team of Palestinians to negotiate with King Hussein, directly with Israel. He has made one visit and I believe another is in the offing. There is no initiative beyond that because a great deal will depend on the success of what he is doing there.

Mr. John Browne: Is my right hon. Friend aware of the assertion that much of the United States' economic growth has been financed by Government borrowing, so far without any apparent inflation? Does she accept that much of this money was effectively siphoned off from investment funds from the non-United States economies, has raised world interest rates and has resulted in serious potential inflation inside the United States economy? Will she assure the House that she will not resort to any cosmetic, irresponsible and inflationary borrowing here at home?

The Prime Minister: No, and that was one conclusion of the summit: that we must not resort to inflationary borrowing, which would be highly damaging not only to the control of inflation but to the prospects of getting more jobs later. I agree with my hon. Friend's premise that, although much investment in the private sector has been financed from within the United States, that has left very little of a savings ratio to finance the deficit, which has been financed by drawing in capital from the world over.


That has kept interest rates artificially high. The greatest thing that could happen in the effort to obtain world expansion would be the lowering of interest rates, which I believe will follow if there is a sufficient reduction in the United States deficit.

Mr. Eric S. Heifer: In addition to the nonsense that the Prime Minister has been talking about Japan, is she aware that on radio the other day, when she gave her first report of the summit meeting to the nation—I believe the programme is called "The World This Weekend"—she talked more nonsense when she suggested that the British people could solve their problems by creating their own businesses? How will the 4 million unemployed living on social security benefits be able to create their own businesses? Will the people who are now going bankrupt because of her Government's policies create their own businesses? Is it not time that she came into the real world and understood that the only way to deal with unemployment in a serious manner is by state and Government intervention?

The Prime Minister: Unless more small businesses are formed, we will not get more jobs. The alternative—this is what the hon. Gentleman proposes—would be to halve jobs and wages or split them proportionately. All that we could do under his proposal would be to shuffle round the amount we have and try to get more employment with it. He will know from the success of Japan and the United States, and from living in the real world, that new jobs come from the formation of new businesses. My right hon. Friend the Secretary of State for Employment, who answered questions today before I did, said that Britain has 100,000 more new businesses today than it had in 1979. That is good, but it is not sufficient. If the hon. Gentleman is giving up all hope of an increase in new business and small business formation, he is giving up all hope of creating more jobs.

Mr. Anthony Beaumont-Dark: Does my right hon. Friend accept that many of us were much heartened and warmed by the fact that she had come to an understanding with Mr. Nakasone of Japan? Does she also accept that, five years ago to the month, I was promised that we had come to a gentleman's agreement with Japan on trade, but that since then the deficit with Japan has increased by more than £20,000 million? has not the time come to say clearly that gentleman's agreements must between gentleman, and that unless the Japanese come to a copper-bottomed agreement in the very near future we shall have to protect our industries as they have protected theirs? This country cannot continue selling its industry down the river to the Japanese.

The Prime Minister: Whatever the Japanese have done so far to try to secure more imports, they have not succeeded. They have not purchased abroad, at any rate not from Britain and some other countries, as many goods, such as aeroplanes, as they could, therefore, we were anxious to fix a date for a new round of GATT so that we could deal with such matters together in a much more effective forum than any other. Apart from that, we must pursue a policy through the European Community. Mr. Nakasone now knows how strongly not only Europe but the United States feels about it.

Mr. Frank Cook: I have listened with interest to the Prime Minister's comments on the views of Mr. Nakasone, and I was interested to hear her reply to the hon. Member for Darlington (Mr. Fallon). Will she reflect on her statement on BBC radio this morning, when she deplored the failure of Cleveland Bridge to acquire the contract for the Bosphorus bridge, not on the grounds that the offer was bad and the technology inadequate, but on the grounds of a last-minute injection of investment as a subsidy from the Japanese Government? During her reflection, will she also consider the fact that that nation gives similar subsidies to its shipbuilding, steelmaking, communications and transport industries? If, as she says now, new industries in Britain must do it without state intervention or aid, how does she expect Britain to compete with countries that do it all the time?

The Prime Minister: I deplore the fact that we did not get the Bosphorus bridge contract for two reasons. First, on the bridge itself, our bid was the lowest and, therefore, I believed that we should get it. When it came to matching an offer that anyone else made, we were prepared to do so for the bridge. However the contract was for the roads as well, and we could not match the Japanese offer there. The second reason why I deplored it was that it will cause the loss of jobs in an area where we could have done with jobs.
As to subsidies, may I point out to the hon. Gentleman that we give subsidies to shipbuilding—considerable subsidies. We give subsidies to steel—considerable subsidies. We give subsidies to railways—considerable subsidies. We give subsidies to coal mining—considerable subsidies. The Japanese are not the only people at it.

Mr. Richard Hickmet: In relation to the Bosphorus bridge contract, does my right hon. Friend agree that although she and her colleagues at the summit agreed that they did not wish to embark on a trade war, that is what the Japanese have done by their predatory pricing methods and by the way in which they dumped credit to secure the contract? The fact that they have offered $206 million over five years at 5 per cent. interest means that they are buying into our markets, jobs and industries and driving up our unemployment. Has not the time come, despite Mr. Nakasone's smiling protestations, to say, "This must stop or your car imports to Britain will be reduced by 10 per cent."? Will she ask the Japanese to subcontract the bridge to Cleveland Bridge?

The Prime Minister: I understand why my hon. Friend feels even more strongly than the rest of us, because he also came to see me about the Bosphorus bridge contract, which will affect employment in his constituency. As I said, we did everything asked of us as a Government to help the company to obtain that contract. I know how strongly he feels about the Japanese, and I share his feelings. But I must make one point: we must be as efficient and as good in design as are the Japanese. We certainly were in relation to the bridge. If we were in relation to everything else, we should have had the video trade here which we did not have. We must be as good at design and efficiency as they are, and in addition we must have free and fair trading. Trading cannot be free unless it is fair.

Several Hon. Members: rose——

Mr. Speaker: Order. I must protect the rest of the business. There are two other statements and a Ten-minute Bill. I shall allow questions to continue until 4.15. I hope that all hon. Members who have been rising will be called to speak before then, provided everyone puts questions briefly.

Mr. Derek Foster: The Prime Minister must be aware that the Japanese have been promising to open their markets and increase their imports for many years. However, despite formidable pressure from international forces for long a time, there has been no progress. Why does not the right hon. Lady fight for British industry as effectively as the Japanese fight for theirs? If she had done so, the Bosphorus bridge contract would be ours.

The Prime Minister: We had the lowest tender on the bridge, which was due to the company, and the Government matched the Japanese offer on the bridge. We could not match it on the roads. We had hoped to get the bridge contract. The company did the job, and we did the job. We did not get the contract for the bridge because of the roads aspect.
I agree with the hon. Gentleman that, despite the strictures not only of Britain but of other countries, we have not yet made inroads into the Japanese market. In some cases, the Japanese have had better-designed and more efficient goods than we have. As the hon. Gentleman knows, we must pursue this matter, either through those who make the voluntary agreements on a industry-to-industry basis, or through the European Community. The Government will pursue it through the Community.

Mr. Nicholas Budgen: As my right hon. Friend and the leaders of the principal European nations penned their splendid general denunciation of protectionism in other countries, did my right hon. Friend reflect that it was rather ironic that the farm Ministers did not even agree on a tiny reduction in cereal prices which had been decided upon a year ago?

The Prime Minister: As I said earlier, almost every country practises some aspects of protectionism. The common agricultural policy is certainly protectionist, but so are some aspects of America's trade and farming. These aspects must be discussed at the GATT meeting. We have had six working parties within GATT, one of which has been concerned with trying to free trade in agricultural products. Six of the seven leaders at Bonn wanted to set a date for the GATT conference, believing that that was the way in which we could all discuss protectionism and how to get rid of it and could bargain one aspect against another. Six of us were ready to set our names to a date; one was not. Nevertheless, I believe that there probably will be such a conference during 1986.

Mr. John Fraser: Despite the fact that we were not directly involved, did the Prime Minister point out to President Reagan the diplomatic folly, petulance and contradiction within the general tenor of the communiqué imposing a trade embargo against Nicaragua? Is it correct that the right hon. Lady has agreed to celebrate the 40th anniversary of Dr. Goebbels' downfall by telling us that she does not have the faintest idea when unemployment will be reduced?

The Prime Minister: The hon. Gentleman's second question was rather grotesque in the circumstances. I am surprised at the hon. Gentleman and some of his right hon. and hon. Friends. There is only one way to increase the numbers employed, and that is to increase the number of customers who are prepared to buy British goods. They will buy British goods when they are the best.
On Nicaragua, President Reagan had his own reasons for taking that action. The hon. Gentleman will recall that, during the Congress debate, there was a message and declaration from Nicaragua that, should help for the Contras stop, Nicaragua would be prepared to follow a genuinely plural political policy and to release documents from censorship. That can only mean that she had not done either until that proposal was made.

Mr. Nigel Forman: As we in Britain have one of the strongest national interests in maintaining an effective open trading system, will my right hon. Friend bear in mind between now and the next GATT round the vital importance of proceeding on a multilateral basis, since it is precisely because of the stitching up of the various bilateral agreements and understandings that we have arrived at so many of our present trading problems?

The Prime Minister: I totally agree, and that is why there are so many piecemeal aspects of protectionism. That is why six of the seven of us wanted to fix a new date for the GATT meeting. All we have done so far is to agree that there should be a preparatory meeting of officials to sort out the agenda and the modalities. We have agreed that that preparatory meeting should take place before the end of the summer. That is at least a step forward to securing the conference that most of us want.

Mr. D. N. Campbell-Savours: Does the Prime Minister believe that the summit will lead to a reduction or to an increase in demands from American Congressmen and Senators for protectionist measures, especially the 20 per cent. import surcharge?

The Prime Minister: If we had all agreed to give L lead on a date in 1986—we could merely give a lead, because Britain is only one of the GATT countries—that would have been a good defence to the demands that would come from some parts of Congress. If the United States becomes more protectionist, it will not be the United States' problem; it will be our problem, Europe's problem and the problem of the developing countries. That was why we took the line we did. I regret that we were not successful in all seven of us agreeing, but at least six of us gave a firm clear lead because we wanted more open markets.

Mr. Harry Greenway: Was the latest Japanese trade deficit of £38 billion discussed round the table by the Heads of State? If so, what conclusions were drawn? What did the Japanese Prime Minister say about it?

The Prime Minister: As I said in my statement, the Japanese have said that they will do all that they can to open up their markets and get the value of the yen to a 'level more appropriate to Japan's excellent trading balance. I still think that the best way of achieving this is not only by discussion with the Japanese but by a GATT ministerial meeting.

Mr. Peter Hardy: A little while ago, spokesmen for the Japanese Government in Strasbourg complained that it was easier for Europe to sell to Japan than for Japan to sell within the Community. That might cause incredulity on both sides of the House, but as far as some member states of the Community are concerned that is true. How does that happen? Is it not clear that, while the Government are in power, Britain's commercial prospects have as much chance as a whale in Tokyo bay?

The Prime Minister: On selling to Europe, different systems apply in Europe—for example, the arrangements in place before the European Economic Community agreement was signed in 1956 have remained in place. That helps Italy especially because it had a small Japanese car quota and, therefore, still has a small quota of, I think, about 2,000. Our car quota with the japanese is arranged between the motor industries. The arrangements in Germany, France and Britain differ because they are voluntary arrangements entered into between the car industries in each of our countries and the car industry in Japan. That is the only basis for them. Apart from that, we have to negotiate through the EEC. The Community states with low quotas are not exactly anxious to negotiate with the rest of us, because it might mean higher imports for them.

Mr. Edward Leigh: During the economic summit, did my right hon. Friend have a chance to discuss with President Mitterrand what happened when, as the brand new Socialist President of France in 1981, he attempted to do precisely what the Leader of the Opposition suggested earlier and, within two years, saw the French economy brought to its knees? Will my right hon. Friend suggest to President Mitterrand that he give a little teaching to his Socialist cousin just in case

the Leader of the Opposition is more interested in economic reality rather than fourth-form abuse wrapped up in a third-form perspective of history?

The Prime Minister: In view of the experiences which my hon. Friend enumerated, I believe that President Mitterrand would be a very good teacher. Unfortunately, I do not think that he would have a very good pupil in the Leader of the Opposition.

Mr. Dennis Skinner: Bearing in mind what has happened at previous summits, and especially this one, does the Prime Minister wish that she had kept to the strictures that she used to admonish a former Prime Minister when she said that these summits were a waste of time? Is she aware that, every time she has returned empty handed, unemployment has increased? Is it not a sad irony that, in this summit, 40 years after the building of the bridge over the River Kwai, the super Japanese, with an economy that the Prime Minister has idolised, have pinched the Bosphorus bridge project from underneath her nose by giving state aid? What an irony.

The Prime Minister: I do not think that the hon. Gentleman could have been listening to what I said, because otherwise he would have heard——

Mr. Skinner: I heard the right hon. Lady this morning.

The Prime Minister: I am delighted. It might by this time have penetrated the hon. Gentleman's mind. After all, we were both at grammar school, so we should both have equal understanding. May I therefore explain in words of one syllable, although the hon. Gentleman could cope with words of three or four syllables if only he would admit it, that the amount of aid which would have been given by this Government to the Bosphorus bridge project was equal to the amount given by the Japanese. I hope that the hon. Gentleman agrees that that was a very good thing to do.

Gas Industry

The Secretary of State for Energy (Mr. Peter Walker): With permission, Mr. Speaker, I should like to make a statement about the future of the British gas industry.
Major progress has been made with the Government's privatisation programme. Management and enterprise have been freed from bureaucratic intervention in industries as diverse as aerospace, the ports and cross-Channel services, the oil industry and British Telecom.
The Government have decided that the time has come for a further major step in the transfer of state industry to the private sector. I propose to introduce legislation at the earliest opportunity to provide for the transfer to a new private sector company of all the assets of the British Gas Corporation, and for appropriate regulation of monopoly aspects of the gas supply business. Following that legislation, the Government intend that the shares in the new company should be sold to those employed in the industry and to the public.
This change, like the earlier ones, will remove state intervention and substitute realistic tests of performance for bureaucratic or political ones. It will create a real ownership by the public and employees in place of the nominal public ownership of the nationalisation statute. It will place new emphasis on efficiency for the benefit of consumers and give employees a new stake in the business.
The legislation will protect the consumer by establishing regulatory arrangements to oversee gas prices to the consumer and terms and conditions of supply. The new company will have an appropriate obligation to supply consumers, as has been the case with the British Gas Corporation. The legislation will protect consumers against discrimination and will contain necessary safety provisions, including the obligation on the new company to maintain the emergency services.
The opportunities for greater competition opened up by the Oil and Gas (Enterprise) Act 1982 will be maintained and kept under review. In particular, it is the Government's intention that competitors should be able to supply not only large industrial consumers but smaller domestic and commercial consumers in areas not already supplied by BGC, with suitable safeguards for safety.
Outside the areas of gas supply, the new company will be able to develop other areas of its business in a competitive environment, subject like any other company to the general framework of competition legislation.
I intend to provide special opportunities to gas consumers and other small investors to purchase shares, in line with our policy on wider share ownership. All gas consumers will benefit from the emphasis on efficiency which will be built into the regulatory system and from a staightforward system of gas pricing related directly to achieved commercial performance.
As with previous privatisation measures, I propose to make generous provision to enable all who work in the industry to acquire shares and thus to take a new stake in the company's performance and success. There will be new opportunities, as well as new challenges, for management and employees in the new company.
The British gas industry is now nearly two centuries old. It has spent nearly 40 years as a nationalised industry,

but was developed for a century and a half in the private sector. It has undergone great change in the past two decades with the transition to natural gas, which has linked it to the great expansion of British industry into the North sea. I believe that today's announcement will mark a new and long period of successful development into which the management and all who work in the industry can bring their present talents and link them with new freedoms in the interests of the nation.

Mr. Stanley Orme: The Government's proposal to privatise British Gas will create a massive new private monopoly out of publicly developed assets. For what purpose, and to what end? Will there be any greater choice for gas consumers? Will it introduce competition, which is so vaunted by the Government? The right hon. Gentleman mentioned the Oil and Gas (Enterprise) Act 1982. How many applications and approvals have there been under that Act? What a flop that Act has been. Will the measure bring the consumer any new benefits? Will it produce lower gas prices? There is not a shred of evidence to suggest that customers will be better off.
The Secretary of State has boasted that gas consumers will be offered a special opportunity to buy shares. The majority of gas consumers have enough to do to pay their present gas bills, which are deliberately inflated by Government policy. Does the Secretary of State recall that it was his Government who imposed a gas price increase of 10 per cent. above the rate of inflation for three years on the run—an additional national gas bill of £4 billion—and a £1·5 billion gas levy? The consumer, not the Government, has financed the development of the gas industry.
The Secretary of State boasts about the so-called wider share ownership. The privatisation record shows an ever-increasing concentration of shares in fewer and fewer hands. Is he aware that less than 5 per cent. of British Telecom's shares are now in the hands of its employees? The same story can be told about British Aerospace and Cable and Wireless.
I remind the Secretary of State that the British Gas Corporation has an outstanding safety record. If his proposals should have the misfortune to get through. there will be widespread anxiety that a private monopoly might cut corners on safety.
In his Cambridge speech last week the Secretary of State made a great point about employment and the creation of jobs. What new jobs will these measures create? What effect will they have, not just on the people who work in the industry, but on the tens of thousands who supply the industry?
Is the Secretary of State aware of growing public disquiet about the financial proprietry of the privatisation programme, which disquiet was rightly highlighted in today's TUC report? Huge fees are obtained by a limited number of City and financial companies. We want a full public and parliamentary inquiry into those issues before any further privatisation.
There will be equally widespread anxiety about the future ownership of the shares. Does the Secretary of State intend to have safeguards, such as the so-called "special" or "golden" share? What time scale does he envisage for these measures? How much does he expect to receive from the sale of these national assets? The sale will involve billions of pounds, but he has not today put a figure on what the Goverment propose.
We all know why the Government are selling this industry—it is to pay for the Chancellor's pre-election handouts. There is no national energy case for the proposals. The British Gas Corporation, as a public corporation, has served the country well. It is one of the success stories of the past 20 years. There is every argument for maintaining a national corporation serving the nation and answerable to the House through the Secretary of State. There is no case for the creation of a monster private monopoly, serving limited interests, apparently to be controlled and regulated by a new Government quango. That is why the Opposition will oppose the proposals and any Bill that follows.

Mr. Walker: In the comments that the right hon. Member for Salford, East (Mr. Orme) made about the interests of the consumer he said that the Government had increased gas prices, against the consumers' interests. Does he not remember the year when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor and the British Gas Corporation announced an increase of 12·3 per cent. in its prices for the following year, and that six months later, at the Chancellor's request, they were increased by a further 9·6 per cent.? Was that looking after the consumer, or was it a politician interfering, as politicians have constantly interfered, in nationalised industries—almost always against the consumers' interests?
It will be in the consumers' interests to have an organisation that is interested in improving efficiency and its competitiveness with other forms of fuel. As to the monopoly position, alas, since 1847 there has been a monopoly in the supply of gas. There was a monopoly when gas was nationalised, because it is unlikely that each house had two or three sources of supply. We recognise that. It is far better to have an organisation that will be judged on its commercial success and efficiency than to have the constant bureucratic control from which every other nationalised industry suffers.
The gas industry's safety record has been good. Plainly, it is in the interests of the new company to maintain the highest safety standards. It will have to follow all the statutory obligations.
I have read the reports of the TUC with a great deal of interest, but I think that its latest report was one of the most superficial and unenlightened that I have seen for a long time.
The "golden" share will have to be considered when we prepare legislation. It is important that the company remains under British control. That has always been the position.
On the question of timing, we hope to get this industry into the private sector as speedily as possible. As to the suggestion that it is an attempt to boost our electoral prospects, the only boost will be if the Opposition are foolish enough to promise that they will nationalise the industry again.

Mr. T. H. H. Skeet: I congratulate my right hon. Friend on his proposals, but may I ask him to bear in mind three crucial matters: the operation of pipelines—I hope that there will be common carriers—future oil discoveries and the export and import of natural gas?

Mr. Walker: These matters will be considered before any issue of shares. The common carrier proposals in the present legislation will continue to operate.

Mr. Bruce Milian: The right hon. Gentleman mentioned efficiency. Is it not a fact that British Gas has been outstandingly efficient, and would have been even more efficient had it not been for the dogmatic intereference of the right hon. Gentleman; for example, over its oil interests and the gas levy?
What possible justification can there be for converting a public monopoly into what will be virtually a private monopoly, unless it is the Government's obsession with short-term financial gain because of their long-standing obsession with the public sector borrowing requirement?

Mr. Walker: If the management and employees of British Gas pursue matters efficiently and effectively, is it not right that they should be given a personal stake in that success? Is it not good that management and all those employed in the corporation should have some direct benefit and result from their improved efficiency and an incentive to apply it to the full?
The right hon. Gentleman accused the Government of interfering in a way that damaged the corporation's efficiency. I could cite many examples from 1974 to 1979 when the Government of which he was a member had all sorts of interventionist pranks with the BGC. That is the horror of nationalisation.

Mr. David Heathcoat-Amory: I congratulate my right hon. Friend on his proposals, which will provide an opportunity to increase the number of shareholders in British Gas from one to many hundreds of thousands, thus creating a genuine measure of public ownership. Can he confirm that gas consumers in the south-west of England will continue to have access to gas supplies after denationalisation? Will the price in that area continue to be roughly the same as in the remainder of the country?

Mr. Walker: Yes, I can confirm both points, and the legislation will ensure that that remains the position. For the south-west and elsewhere in the country, the current positions for supply and pricing will continue to operate.
I agree with my hon. Friend about the spread of ownership. The reality of the hopes and aspirations of nationalisation in 1945—of there being a genuine sense of ownership for those employed in the industry—has proved a failure, and the ownership has always been in the hands of politicians and civil servants.

Mr. Ian Wrigglesworth: Will the Secretary of State tell the House how the commercial success and efficiency of the new company can be judged if there is to be no real market for its goods and no real competition? Who will carry out the regulation of prices and of the monopoly? Will another bureaucratic quango do that? How will the consumer benefit if the monopoly still exists?

Mr. Walker: There are plenty of examples throughout the world of privately owned utilities in which there is a regulatory price system having fine performances in efficiency. Efficiency brings rewards to the managers of a company and also to the consumers. A great deal of competition will remain, as there has been for a long time, between gas and electricity.
If the hon. Gentleman is saying that the alliance is in favour of continuing nationalisation, I shall look at that with considerable interest.

Mr. Albert McQuarrie: I congratulate my right hon. Friend on his statement. I am glad that British Gas is finally to be denationalised. Contrary to the view of the right hon. Member for Glasgow, Govan (Mr. Millan), British Gas has been an inefficient organisation in Scotland. I hope that the legislation will ensure that the smaller towns can enjoy gas—something which they cannot do now. What steps does my right hon. Friend propose to take on the question of the many showrooms in towns and cities that will be affected by privatisation?

Mr. Walker: British Gas has recently reduced the number of showrooms as a result of a commercial decision. The Government took action to ensure that the accounts of the showrooms should be shown separately. I think that the corporation will take decisions to improve effectiveness. For example, in a number of recent cases British Gas has undertaken joint ventures with the private sector in retailing and providing services. I guess that under privatisation that will be an increasing trend.

Mr. Dick Douglas: What is the criteria against which the right hon. Gentleman judges the efficiency of an organisation, and will he measure them against the performance of British Gas in return on assets, profitability, safety and customer satisfaction? Can any private concern in the United Kingdom measure up to the performance of British Gas since it was created? How does he propose—if he proposes at all—to restrict incursions by oil companies into the ownership of the company that he will create? The Oil and Gas (Enterprise) Act restricted the incursions of British Gas into the oil industry. Will he give an assurance that the so-called golden share will operate?

Mr. Walker: On the hon. Gentleman's latter point, I believe that, in common with other privatisations, the golden share will operate. On the issue of the North sea, the privatised BGC will have all the freedoms of any other corporation or company, which will be a further advantage.
On the question of criteria, many other companies could probably show that they have done better on return of capital——

Mr. Douglas: Name one.

Mr. Walker: There are plenty. The BGC, like any other corporation, has had its mistakes and its successes. If the management is as good as the hon. Gentleman suggests, it will at last have a system where that is recognised.

Mr. Peter Rost: Does my right hon. Friend accept that there might have to be some changes in the tax regime if the Government are to retain their economic rent, bearing in mind that the shareholders, whom we welcome, rather than the Treasury, will be collecting the dividend?

Mr. Walker: The taxation proposals that will apply to the industry will have to be made clear by the Government prior to any issue, and I am sure that that will be done.

Mr. Malcolm Bruce: Does the Secretary of State acknowledge that this is a further extension of the Tory party's clause 4? It is an ideological privatisation, not

to benefit the industry, but to create current spending out of state-owned capital. Does he not realise that a flotation of this size will distort the stock market, to the disbenefit of the smaller businesses needing venture capital? Does he not recognise that at the end of the day British Gas will still be a monopoly? If it must be regulated, why cannot that regulation and competition be introduced within the public sector?

Mr. Walker: There are substantial resources in the pension funds which represent the interests of those who work in industry. There is a substantial supply of money available to such an enterprise. It will be an attractive and good investment.
There is a general argument that it is rather nice to keep all this in the public sector. By chance, at some time during my political life I happen to have had Cabinet responsibility for virtually every nationalised industry, with the exception of the Post Office—and I am not volunteering for that. All I can say, in no doctrinaire way, is that under all Governments the Treasury and appropriate Departments have crawled over every project and plan and interfered on a considerable scale, which is a great disadvantage to these industries.

Mr. Rob Hayward: I welcome my right hon. Friend's announcement. Did he consider setting up regional bodies rather than a national body, as that would have provided a degree of comparison of operation from different part of the country?

Mr. Walker: Yes, I gave careful consideration to that, but, for a range of reasons, concluded that it was not a positive or practical idea. The reorganisation—which was carried out prior to my time at the Department—to make one network showed savings of probably £1 billion a year. To set up new organisations for each region, to follow that by a period of time within which they all had an opportunity to settle in, and to have considerable price differentials hitting some regions of the country far more than others would, in totality, have created no advantage, particularly when, at the end of it all, one must remember that gas is a product which, whether on a regional or national basis, will not have house-to-house competition.

Dr. Jeremy Bray: Does the Secretary of State expect the Gas Corporation to have 10 pay higher charges for any capital that it raises after privatisation? If not, what assurances can he give about future changes in the tax regime to people who may be considering buying shares? Does he think that the present chairman of the Gas Corporation will be more committed to the gas industry if he has a private holding in it?

Mr. Walker: The present chairman will, of course, decide what he considers to be the advantages or disadvanages, but I should have thought that for any chairman, having all of his employees and members of management being able directly to participate in the firm must be an advantage of outstanding importance. The answer to that part of the hon. Gentleman's question about borrowing is that the cost of borrowing, as he knows, varies depending on the success and quality of the management. The cost of borrowing for highly assessed, quality managements is even cheaper than borrowing from the Government.

Mr. John Watts: I welcome my right hon. Friend's announcement of this further substantial


extension of genuine public ownership. Will he pay particular attention to the need to break the effective monopoly which is enjoyed by the Gas Corporation through its control of the pipelines, which, in spite of the common user provisions, prevents the competitive supply of gas direct from producers to consumers? Will he ensure that, within the new arrangements, there is an opportunity for real price competition between suppliers?

Mr. Walker: I must tell my hon. Friend, having studied the worldwide scene, that he should not overestimate the areas in which there will be two suppliers in competition. I have looked at operations throughout the United States, in the whole of North America, in Australia and in other parts of the world, and it is a myth to pretend that by some wave of the legislative wand there will be massive competition. We had a private sector gas industry in Britain for more than 100 years. From 1847 onwards there has been little competition of the nature described by my hon. Friend.
The provisions of the 1982 legislation are important. I have made it clear that for industrial users and those in areas which at present do not have gas supplies, if competition wishes to come in and supply them that opportunity will be available, and I hope that advantage will be taken of that. I have also said that we will keep the 1982 legislation under review. However, it would be wrong to give the impression that anywhere in the Western world was there lots of competition in gas.

Mr. Gordon Wilson: One is bound to wonder what the Government will do for cash after they have flogged off and squandered the nation's assets. Will a gas levy be imposed on the private company, and will that company be able to import Sleipner or other gas from the Norwegian sector should it wish to do so and the Government disagreed?

Mr. Walker: Decisions on import and export policies and the future of taxation will have to be announced by the Government before any prospectus is issued.

Mr. Tom Sackville: Does my right hon. Friend agree that there is no reason for any diminution of safety standards as a result of this measure? Does he further agree that any concern that arises will principally be the result of a scare campaign by the Labour party?

Mr. Walker: I agree with my hon. Friend, and it would be a grotesque insult to the existing management of the British Gas Corporation to suggest otherwise.

Mr. Peter Hardy: The Secretary of State suggested that many other substantial companies had done better than British Gas. Will he name one substantial public company which has equalled the record of British Gas over the last decade? Does he really believe that when these assets have been sold off the profits which will accrue to the shareholders rather than to the Treasury will directly serve the national interest?

Mr. Walker: When the shareholders happen to be the management and employees, and those who administer pension funds, all taking an interest in improving efficiency, and when one removes from British Gas the

massive interference of politicians and civil servants that has taken place, there will be advantage to the nation as a whole.

Mr. Tim Yeo: In view of the massive success of the British Telecom share sale in attracting the participation of a high proportion of employees, against the advice of their trade union, and introducing an unprecedented number of individuals to the experience of share ownership, may I ask my right hon. Friend to assure the House that the same careful attention will be given to marketing the British Gas issue when the time comes?

Mr. Walker: Yes, I assure my hon. Friend of that. One of the most important aspects is that employees and managers will be able to have a substantial share in their corporation. That will be good, and, as my hon. Friend says, it was a great success with British Telecom. I see no proposals in today's TUC statement suggesting that the workers of British Telecom should have those advantages taken from them. I am sure that those employed in the gas industry will welcome this opportunity to participate in their future success.

Mr. Ken Eastham: Is the right hon. Gentleman aware that prior to the establishment of British Gas many major British towns and cities successfully ran their own gas authorities? Should an authority desire, in the interests of its ratepayers, to make a bid, will he place any obstacle in the way of that being done? In other words, will it be left to the finance houses to take part in this wholesale looting of taxpayers' assets?

Mr. Walker: If the hon. Gentleman feels that way, he should have opposed nationalisation when it first took place.

Sir John Osborn: May I, as one who made his maiden speech on the subject of gas, add my congratulations to my right hon. Friend for his statement today? Since making that maiden speech, whereas oil has been international, natural gas has been too national, particularly in Europe. Will my right hon. Friend consider the possibility of common carrier obligations extending to a European gas grid, with the possibility of domestic and industrial users consuming gas from Norway, the middle east and perhaps even from Siberia?

Mr. Walker: The future export and import policy will have to be carefully considered before the transfer of ownership is made, and a statement issued. We must recognise the importance of seeing that the development of the North sea continues and that there is security of gas supplies to this country. Decisions will be made in that context.

Mr. Max Madden: Does the chairman of the British Gas Corporation support the transfer of the gas industry from public to private hands? If he does not, will the right hon. Gentleman give an assurance that he will not attempt to gag the chairman in defending his industry remaining in public hands?

Mr. Walker: I do not know of anybody who has succeeded in gagging Sir Denis Rooke.

Mr. Peter Bruinvels: I congratulate my right hon. Friend on his announcement. Will he do everything in his power to allay the fears of employees of both British Gas and East Midlands Gas and assure them


that they have nothing to be frightened about, but, rather, that they should be encouraged to buy shares because they will be good value? The one problem that I envisage relates to the tariff structure. What will be done about tariffs to ensure that there can be genuine comparison of efficiency after the change comes about?

Mr. Walker: The regulatory authority will lay down criteria which eventually will be examined by the House, and I believe that that will be clearly seen to encourage efficiency, to the benefit of consumers and shareholders in the business. I welcome my hon. Friend's comments about the employees. I am certain that what is proposed will be beneficial to the employees, though doubtless there will be the usual scares about their pension rights and so on. All of those rights will be protected and they will continue, and the employees will know that the business is freed from the sort of Government interference that has not done the industry much good in the past. In addition, they will be able to share in their own success. Any sensible and rational employee in the gas industry should strongly welcome the statement.

Mr. James Lamond: Has the Cabinet taken account of the overall impact of the policy which has just been outlined in relation to British Gas, already carried out in the case of British Telecom, and expected to be carried out in the case of British Aerospace and, possibly, the British Airports Authority? There are to be massive share issues and, apparently, an attempt to attract the small savers. That must be detrimental to the inflow of funds to organisations such as the building societies. They may have to increase their interest rates to the lenders, and that will have grave implications for those with mortgages. Has the Cabinet taken that into account?

Mr. Walker: If the hon. Gentleman takes that view, he should calculate the effect of large Government borrowings on the same movements and deplore them too.

Mr. Frank Haynes: I do not intend to congratulate the Secretary of State. While the right hon. Gentleman was prancing around in the Ministry of Agriculture, Fisheries and Food a few years ago, like a bull in a china shop, and looking after the interests of the farmers on the Benches behind him, another Minister suggested at the Dispatch Box that a certain sector of the gas industry should be sold off. However, because of the ensuing row in the House of Commons, and the invasion of the House of Commons by thousands of employees from the industry, the Government backed off. If the employees in the industry make it clear to the Secretary of State that they are not interested in privatisation and have already demonstrated against it, will he back off? If not, why not?

Mr. Walker: Provided that the hon. Gentleman, having made the same remarks about British Telecom, will back off now that all the shares have been bought.

Mr. Haynes: rose——

Mr. Speaker: Order. We all hear things here that we do not like.

Mr. Orme: May we take it from the Secretary of State's answers that there is to be a golden share and that the industry will be protected from overseas takeover? That should be made quite clear.
Secondly, if a private monopoly is allowed to have oil interests, but a public monopoly, which is successful and is investing, is prevented from having the same interests, is there not a contradiction in the Conservative approach?

Mr. Walker: No, I think that it is a very good Conservative approach, and I fully support it.

Mr. Haynes: On a point of order, Mr. Speaker.

Mr. Speaker: I shall take the point of order. However, as no doubt the hon. Gentleman was seeking to discomfit the Secretary of State, I hope that he is not being too thin-skinned about the matter.

Mr. Haynes: Perhaps I should not raise the point of order.

Mr. Walker: If the hon. Gentleman made no criticism of British Telecom and did not consider that the workers were against the change, of course I withdraw. How wise the hon. Gentleman was.
I assure the right hon. Member for Salford, East (Mr. Orme) that there will be appropriate legislation to ensure that there can be no foreign takeover.

Mr. Haynes: On a point of order, Mr. Speaker. The right hon. Gentleman made an accusation that is not true. If he had said "The Labour party", I would not have protested, but he referred specifically to me. What he said was not true and I ask him to withdraw it.

Mr. Walker: Of course I withdraw it. I congratulate the hon. Gentleman on not being associated with the Labour party.

Mr. Haynes: Further to that point of order, Mr. Speaker. The right hon. Gentleman is answering in the same vein, and that is not being honest at all. That is being crooked.

Mr. Speaker: Order. No, it is not being crooked. The hon. Gentleman must not make that accusation. I think that, on reflection, he will withdraw that word.

Mr. Haynes: I withdraw it. I should have said "deceitful".

Legionnaire's Disease (Stafford)

The Minister for Health (Mr. Kenneth Clarke): I will, with permission, Mr. Speaker, make a statement about the outbreak of Legionnaire's disease in the Stafford area.
From mid-April onwards the Mid-Staffordshire health authority has had a series of admissions to its hospitals of mainly male and mainly elderly patients with acute respiratory illness. The combination of pneumonic and other symptoms suggested that one of the organisms responsible could be legionnella pneumophila. Investigations also showed cases of influenza B. Legionnaire's disease is difficult to diagnose with certainty at the beginning of an outbreak because blood tests on living patients do not provide confirmatory evidence until two to four weeks after the onset of the illness. It was not until 3 May that the first positive evidence of Legionnaire's disease was obtained and a positive diagnosis of the disease was then made in 12 cases.
On 29 April the health authority contacted the communicable disease surveillance centre at Colindale which is the national centre of expertise in this field. The following day two doctors from Colindale began their investigation in Stafford. They were asked to support the health authority in the efforts that it was already making to diagnose and trace the source of the disease. After 3 May, the team from Colindale was increased and intensified its efforts to identify possible sources of the outbreak in the community. These investigations are still continuing. One probable source that has been identified is the water in the cooling towers of the Stafford district general hospital's own air conditioning system. This and all water supplies at the hospital have therefore been tested and heavily chlorinated. The hospital has now been declared safe by the Colindale team and the Health and Safety Executive.
By 10 am this morning, a total of 30 people showing the symptoms of acute respiratory illness have died since the beginning of the outbreak. Of these, six are confirmed cases of Legionnaire's disease. A total of 130 people have been admitted to hospital with the symptoms. Seventy-four are still in hospital, of whom two are in intensive care. The indications are, however, that the outbreak is now under control. Seven patients have been admitted or transferred to Stafford general hospital during the last 24 hours. Sixteen patients have recovered sufficiently to have been discharged.
I have spoken to the chairman of the Mid-Staffordshire health authority and I am confident that the authority is doing everything necessary. I should like to pay tribute to all the authority's employees, and in particular to the nursing and medical staff, who have worked throughout the period to treat the patients and keep the Stafford hospital open.
The first priority so far has been to deal efficiently with the outbreak and positively to identify the source of the infection. Once we are completely satisfied that this has been done, we will need to inquire into the outbreak in detail, and to consider what lessons can be learnt from it. The exact form, composition and terms of reference of the inquiry can most sensibly be settled when the immediate task is complete. The patients, their families and the public

will wish to have the full history of the outbreak. We and health authorities will want to know what further steps might be taken to minimise the risk of any similar occurrence anywhere in the future. I expect, therefore, to make a further detailed announcement about the inquiry as soon as possible.
I am sure that the whole House will join me in expressing sympathy with the families of the victims of this tragic outbreak of disease in Stafford.

Mr. Frank Dobson: I am sure that all hon. Members will wish to join the Minister in expressing sympathy for the victims of the outbreak, and their families, and in paying tribute to the NHS staff who have worked so hard to try to save the lives of those affected.
It is also right that people should concentrate for the moment on combating the outbreak. However, people in the Staffordshire area, and perhaps further afield, will not be really reassured until there has been a thorough-going and independent inquiry into the outbreak. People will not be satisfied with a local internal inquiry conducted by the health authority or an inquiry conducted by the regional health authority.
I should like to ask a number of specific questions. The Minister may not be able to answer all of them today, but the inquiry will need to consider them. What was the cause of the outbreak, and how did it spread? When did the health authority first suspect that the outbreak was not influenza? If the health authority had suspicions before 29 April, when it first contacted the communicable disease surveillance centre, why was there delay in contacting the centre? Have the tests on the cooling tower water provided positive proof of an infection in the water system? Is the health authority's own pathology laboratory sufficiently well equipped and staffed to cope with the outbreak? Did the Stafford general hospital follow the DHSS guidelines for keeping the cooling towers clean? In any case, are those guidelines adequate? Have checks been made at other hospitals of a similar design, of which there are a substantial number? Are checks to be made on other forms of cooling towers and cooling systems, whether commercial or industrial?
Until those questions have been answered, people in Stafford and others interested in the outbreak are not likely to be satisfied.

Mr. Clarke: The hon. Gentleman accepted that a number of his questions anticipate the outcome of the inquiry, so I shall not go into detail on those matters. I have discussed the issue with my hon. Friend the Member for Stafford (Mr. Cash) and we have talked about the form of any inquiry. It turns out that the hon. Member for Holborn and St. Pancras (Mr. Dobson) agrees with me and my hon. Friend that the inquiry must be independent, which almost certainly means that members will not be drawn from the regional or the district health authority.
The only matters about which I wish to delay are the composition and terms of the reference of the inquiry. Only after the whole thing has been dealt with at Stafford shall we be certain of the sort of expertise that we shall require on the inquiry team. We shall then know to what extent they will be considering health matters or engineering matters and so on, and we shall be able to get the right people together.
Questions about the cause of the outbreak and steps taken to identify and diagnose the disease will have to be


addressed by the inquiry. The hon. Member for Holborn and St. Pancras will appreciate that the people of Stafford were taking steps from the moment they began to realise that there was an upsurge in numbers, and he will appreciate the difficulties in positively identifying and diagnosing Legionnaire's disease and distinguishing it from other forms of apparent pneumonia. The details mentioned by the hon. Gentleman will be addressed by the inquiry.
We do not yet have the results of the tests on the water in the cooling towers, but no doubt we shall receive the results soon and find out whether they are positive and whether they confirm the identification of the cooling towers as the probable source of the infection. The epidemiological evidence is compelling and makes it almost certain that the cooling towers were the source.
There are departmental guidelines, and they were circulated to all authorities after an outbreak in Kingston upon Thames in 1980. As far as I am aware, the guidelines have been complied with, but, again, the inquiry will look into that. One result of the tragic outbreak may be that we shall have another opportunity to assess the adequacy of the guidelines and to update, strengthen or adapt them, as proves necessary.
Purely as a precaution—and one that the hon. Member seemed to be urging—we intend in the next day or two to write to the managers of every district health authority drawing attention yet again to the guidelines and making sure that the necessary inspections, tests and chlorination are being carried out on cooling towers of the type at Stafford.
Whether it will be necessary to look again at the design of new hospitals, cooling towers and air conditioning systems in a wide range of modern buildings will be discovered only in the fullness of time when there has been the most exhaustive inquiry into the outbreak.

Mr. William Cash: I am grateful to my right hon. and learned Friend for making a statement and for agreeing to the independent inquiry for which I have called over the past week. I am also grateful for the effective and immediate advice tendered to the district health authority by the Government and their officials. Has my right hon. and learned Friend any idea when the inquiry is likely to take place?

Mr. Clarke: I am grateful to my hon. Friend, particularly for his tribute to the assistance given by the people from Colindale in the most valuable scientific and medical support that the Department was able to give to the people struggling with problems in Stafford.
We do not want a great delay before the inquiry is held, because we do not want memories to fade or details to be lost. I expect to be able to make the further announcement to which I referred—about the form and terms of reference of the inquiry—within the next week or two, assuming that we are able to clear up the remaining doubts about the outbreak and its resolution over the next day or two. After that, it will be a matter of logistics to get the inquiry under way as soon as possible.

Mr. Michael Meadowcroft: I associate my right hon. and hon. Friends with the Minister's expressions of sympathy.
The institution of an inquiry must be sensitively timed, though I accept what the Minister said about the need for some speed. Will he consider making the inquiry's terms

of reference sufficiently wide to take into account the possibility that this disease, like others, may have originated in non-industrialised countries? Increased mobility, let alone altruism, perhaps necessitates preventive measures and effective health care being looked at globally rather than in our country alone. Might not some of the new health problems that we are experiencing be coming from abroad and should we not consider carefully whether action needs to be taken beyond our shores?

Mr. Clarke: The disease has been positively identified only in fairly recent times, but it appears to be a particular problem in modern buildings, with modern air conditioning systems and showers. I have no doubt that everything learnt from such outbreaks in this country and in other countries has to be used on a worldwide basis. It is only from such occurrences that we learn how to protect ourselves against them. My hon. Friend the Parliamentary Under-Secretary of State for Health and Social Security is attending the World Health Assembly in Geneva this week, and no doubt he will take the opportunity at the margins of the meeting to discuss experience of Legionnaire's disease throughout the world.

Mr. Patrick Cormack: I associate myself with the expressions of sympathy that my right hon. and learned Friend has properly uttered. Is he aware that for many years my constituents and others in Staffordshire were waiting for the hospital, that many thousands of them are grateful for the extraordinarily fine care that they have received as inpatients and outpatients since it opened, but that they are deeply worried about what appears to be a terrible problem emanating from the most modern of buildings?
I thank my right hon. and learned Friend for saying that the inquiry will be independent, but I urge him to ensure that it is thoroughly independent and that someone such as a High Court judge is asked to preside over it.

Mr. Clarke: There is a tragic irony here. We have a magnificent new hospital and there is a strong probability that one feature of it has proved to be a cause of disease. I reassure my hon. Friend's constituents that the water systems for the tanks have been drained, refilled and heavily chlorinated; the whole water system has been chlorinated; and the temperature in the hot water system was raised to a level that killed off the organisms that cause the disease. The system has been declared safe by everybody, including the national experts from Colindale. There is no continuing risk to health.
I entirely agree with what my hon. Friend said about the independence of the inquiry, and I shall comply with his request.

Mr. Jack Ashley: I associate myself with the Minister's expressions of sympathy.
Is it not ironic that people going into hospital for a cure contract a disease instead? Is the Minister aware that that is happening frequently and that, according to a letter sent to me by the Secretary of State 18 months ago, 10 per cent. of patients in British hospitals acquire infection on entering hospital? Will the Minister take the advantage of this opportunity to deal with the major problem of hospital-induced disease and try to make hospitals safer for patients?

Mr. Clarke: The right hon. Gentleman is correct in saying that there is a problem of infection in hospitals.


Everybody in the NHS is aware of that and devotes considerable attention to reducing the infection incurred by patients.
I know that the right hon. Gentleman does not wish to cause needless alarm. He knows, though some members of the public may not, that some of the infection that makes up the near 10 per cent. figure is trivial and minor. Nevertheless, I would not minimise any of it. As Legionnaire's disease is a newly discovered and particularly difficult infection, we must make sure, in the light of the Stafford tragedy, that we reduce the risk to a minimum in future.

Mr. John Heddle: On behalf of my constituents in Stone and Rugeley in particular, many of whom work in the hospital and a number of whom have been bereaved, I should like to associate myself with my right hon. and learned Friend's remarks.
According to national press reports, the problem may have arisen from the air conditioning system, as my right hon. and learned Friend said, but that system was investigated and serviced as recently as January this year. Will the inquiry therefore establish that that investigation was thorough and proper rather than simply cursory and of a general nature? Secondly, will he take account of the fact that within easy reach of the hospital there are two power stations, Rugeley and Meaford, both in my constituency, and therefore that there might still be a possible risk of some atmospheric conditions emanating from the cooling towers there, and will he ensure that this wide-ranging inquiry considers that aspect also?

Mr. Clarke: On the available statistics, there is a strong probability that the cooling towers at the hospital were the source of the infection. Until we have the results of the tests, we cannot be absolutely certain. But, of course, we will not eliminate the continuing search for other possible sources of infection.
There are guidelines about the inspection and chlorination of water systems in hospitals. We will want to make sure, first, that they were complied with, and, secondly, that they are adequate, although, of course, one can never guarantee that an infection will not arise a day after a thorough inspection has been carried out. Any lessons that are drawn from this incident may well have wider application to buildings other than hospitals, because the problems with most air conditioning systems and large accumulations of water, as in cooling towers at power stations, can all give rise to Legionnaire's disease in some circumstances.

Mr. Mark Fisher: Is the Minister able to say over what period of time the cooling ponds and towers may have been defective? Is he able to identify the number of people visiting the hospital who may have been at risk in that period, and so reassure people, certainly in my constituency and in neighbouring health authorities, that the problem will not spread?

Mr. Clarke: I am not able to give absolutely positive answers to those questions, because they are no doubt matters that the inquiry will examine.
The health authority became aware of this upsurge of people with pneumonic symptoms in mid-April. It peaked towards the end of April, and it is now falling. away again.

None of the staff appears to have contacted any problems of this kind, and many other people who obviously went to the outpatients' department have had no problem.
One of the features of Legionnaire's disease is that only particular sections of the population appear to be at risk. The young and the fit by and large are often quite unaware of the fact that they have had anything other than a mild dose of flu. Therefore, it may well be that no one will ever be able to give completely positive answers to the questions that the hon. Gentleman has asked.

Mr. Gerald Howarth: A number of my constituents in Cannock have been affected by this terrible disease. I have been asked by some of them to express to the staff involved the tremendous appreciation of those who have been bereaved at the efforts made by the hospital staff in difficult circumstances.
I very much welcome what I took to be an indication by my right hon. and learned Friend that there will be an independent inquiry. I am sure that bringing minds to bear on this problem from outside the Health Service could well be advantageous and help to root out the cause of this baffling disease. Will my right hon. and learned Friend look particularly at the air conditioning systems not only in the public sector but in the private sector? Lastly, once the causes have been discovered, could we perhaps have an action programme circulated to every hospital and general practitioner in the country, so that the disease can be identified at an early stage?

Mr. Clarke: I am sure that my hon. Friend's praise for the staff of the hospital will be much appreciated.
There is no doubt that we will have an independent inquiry. All that I am reserving today are the names of the members, the exact form of the inquiry and its terms of reference. I appreciate my hon. Friend's concern. As I said a moment ago, anything that we discover as a result of this outbreak almost certainly will have some relevance and application to those responsible for modern hotels or office blocks, and probably other premises.

Mr. Laurie Pavitt: In the light of the increased knowledge that we now have of the whole question of pathology and respiratory diseases and the extra work at Colindale that the Minister has mentioned, can we rest assured that, in the cuts being applied to the Medical Research Council, research in this sector will not be cut back? Secondly, in the light of an answer that the Minister gave to one of his hon. Friends, as the family practitioner committee is no longer part of the district health authority and as more people die from respiratory disease not in but outside institutions, can we be reassured that the same kind of coverage and information will be made available to general practitioners as will be made available to hospital doctors?

Mr. Clarke: This is not the occasion on which to enter into arguments about whether cuts are taking place in the budget of the Medical Research Council. Since 1981 research has been commissioned into aspects of this disease. The results of the studies carried out are now being analysed. We hope to have the results of valuable work following that research by the autumn this year.
On the last point, we have obviously had to make sure that no division of responsibility leads to any division of knowledge or access to knowledge. In fact, the Stafford


district health authority took steps to notify its general practitioners, warning them to watch out for certain symptoms and to inform the health authority the moment that Legionnaire's disease was positively diagnosed. I quite accept that people in the community will be affected as much as those who have been admitted to hospital.

Mr. Edwina Currie: Does my right hon. and learned Friend agree that this outbreak is a tragedy not only for the people who died and for their families but for the dedicated staff of the hospital who must be deeply upset at the thought that the hospital itself could be the culprit? Perhaps all that it shows is that we know precious little yet about the epidemiology of this disease. Does he further agree that one of the lessons that are bound to be drawn is that spending on the maintenance of hospitals, new and old, is not optional but of the utmost importance, and that maintenance budgets at which no one ever looks and about which no one ever boasts are not in conflict with acute care but an essential part of it?

Mr. Clarke: I agree with both parts of my h on. Friend's question. First, I think that the staff would share her views entirely. Secondly, certain elements of maintenance are essential for safety. All authorities should resist the temptation to make cuts in maintenance which are easier to make than changes elsewhere. As far as I am aware, in this case there is no background of cuts in maintenance or anything else in Stafford. Indeed, Stafford is an authority with a brand new hospital, the hospital which we are discussing, and it has £500,000 more revenue spend this year than it had last year.

Mr. Tim Smith: Is my right hon. and learned Friend aware that a company in my constituency, Housemans Burnham Limited, claims to have a product, Hatacide LP5, which is highly successful in controlling the legionella pneumophila bacteria in industrial cooling sytems? Will he see whether this could be used to prevent outbreaks elsewhere?

Mr. Clarke: I hate to say anything for good or ill about my hon. Friend's constituents, but the fact is that none of these biocides has the approval of my Department, although we have considered a number of them. All the advice that I have is that chlorine is the most effective way of dealing with Legionnaire's disease and the organism that causes it, and chlorine is the only product at present recommended by my Department.

Mr. Peter Bruinvels: Will my right hon. and learned Friend do everything in his power to speed up the decision and judgment of the inquiry because of the fear felt, perhaps unnaturally in certain other parts of the country, by people who may be deterred from going into a new hospital? We all know that hospitals are there to cure. We need the report of the inquiry as soon as possible.

Mr. Clarke: As I said earlier, as a precaution we will write to the general managers of all districts reminding them of the existence of the circular which sets out the frequency with which water systems should be tested and chlorine added. I am sure that we will find that every district is already following those recommendations. Any that are not will be doing so in double quick time and will not wait for the inquiry.

Mr. Dobson: Assuming, as we must for the time being, that the water system and the water towers are the source of the infection, will the Minister give us a clear commitment that he will get in touch immediately with those authorities which have hospitals of a design similar to that of this hospital to make sure that this does not occur in other places?

Mr. Clarke: I will. All that the letter to which I have referred awaits is the necessary typing and postal distribution. We will, as soon as possible, be writing to all health authorities pointing out that they should be examining their sytems every six months and chlorinating them to the recommended level.

Mr. Speaker's Ruling (Written Answers)

Mr. Speaker: The hon. Member for Sedgefield (Mr. Blair) raised a point of order last Friday, when Mr. Deputy Speaker was in the Chair, about the substitution by the Treasury at about 7 o'clock last Thursday of a new text of a written reply after what purported to be the original reply had been lodged at the proper time, that is, at 3.30 pm. I understand that the facts are not in dispute.
Nevertheless, I have to rule that, in the words of "Erskine May" on page 345,
any alteration
—to a written answer—
must be made orally in the House by the Minister".
The Treasury should not have sought to substitute a new answer by sending it to the hon. Member for Sedgefield at 7 o'clock. I note that the Financial Secretary offered his apologies when the matter was first raised last Friday.
Furthermore, the revised answers should not have been accepted and printed by the Official Report. I therefore direct that the original answers should now be printed and should appear in the Bound Volume.
I also understand that the hon. Member for Sedgefield was concerned about the interference with his mail once it had been placed on the Letter Board. No doubt the staff on duty at the Letter Board were seeking to be helpful, but I have to say that they should not have allowed the mail of the hon. Member to be opened in the way in which it apparently was.

Mr. Tony Blair: I am grateful for your ruling, Mr. Speaker, and I am content to leave these aspects of the matter at that.

CORRIGENDUM

Official Report, 2 May 1985, Written Answers, columns 245 and 246, delete all under the heading "Johnson Matthey Bankers" and insert instead thereof:

Mr. Blair: asked the Chancellor of the Exchequer if, pursuant to the answer of the Economic Secretary on 25 April, Official Report, column 974, he will list the lending of Johnson Matthey which was there described as extremely unwise and imprudent lending; and if he will make a statement.

Mr. Ian Stewart: No. It would not be proper for me to reveal details of the affairs of JMB's customers.

Mr. Blair: asked the Chancellor of the Exchequer whether the inquiries by the Bank of England into Johnson Matthey Bankers have revealed departures from normal prudent banking practice.

Mr. Ian Stewart: Yes.

Mr. Blair: asked the Chancellor of the Exchequer (1) what action the Bank of England took prior to the collapse of Johnson Matthey Bankers in pursuance of its duty to supervise the banking system;
(2) whether the review of the arrangements for banking supervision will comment on the justification of the Bank of England's takeover of Johnson Matthey Bankers; and if he will make a statement;
(3) whether the review of banking supervision will deal with the monitoring by the Bank of England's banking supervision department of Johnson Matthey prior to its collapse and the steps it took prior to the collapse to identify and seek to correct Johnson Matthey Banker's difficulties.

Mr. Ian Stewart: [pursuant to his reply, 29 April 1985, c. 65]: My right hon. Friend will make a full statement when he has received and considered the report of the review of banking supervision and has nothing further to add at this stage.

Personal Statement

Mr. Dafydd Wigley: With permission, Mr. Speaker, I should like to make a brief personal statement.
On Friday afternoon, following some heated exchanges, I was in the process of making representations to Mr. Deputy Speaker, during the course of which I accidently dislodged the hinged wing of Mr. Speaker's chair. That was certainly not intentional, but I wish to apologise to you, Mr. Speaker, and to the House for any discourtesy which may have been attributed to the incident and to give my undertaking that I shall be more careful with the furniture of the House in future.

VE Day—40th Anniversary

Mr. David Winnick: On a point of order, Mr. Speaker. I appreciate that you are not responsible for the business of the House, but I seek your advice because of the shortage of time.
I understand that there is not to be a statement in the House tomorrow to mark the 40th anniversary of the ending of the war. It seems strange to me, and no doubt to other hon. Members, that there will be no opportunity for brief exchanges and that an event of such historical importance is to pass without any kind of statement.
I understand that there is to be a service, but, in view of the shortage of time, I hope that the Leader of the House will be prepared to explain why there is not to be a statement. Indeed, I hope that even at this late stage there will be a change of mind on this very important topic.

Mr. Speaker: The hon. Gentleman has information that has not been given to me. Normally I do not know about these matters until 12 o'clock on the day in question.

The Lord Privy Seal and Leader of the House of Commons (Mr. John Biffen): I am almost all that stands between the House and the Committee stage of the Finance Bill, so my remarks will not be protracted.
I accept at once that the concern expressed by the hon. Member for Walsall, North (Mr. Winnick) is widely felt throughout the House. The hon. Gentleman will see from the record of what happened 40 years ago, however, that on that occasion the House adjourned for a church service. In many ways, therefore, it seems appropriate that we should repeat that.
Nevertheless, as the hon. Gentleman has raised the matter, I shall look at it again.

Abolition of Forth and Tay Road Bridge Tolls

Mr. Gordon Brown: I beg to move,
That leave be given to bring in a Bill to abolish tolls on the Forth and Tay Road Bridges.
The Bill is designed to rectify a long-standing injustice whereby Fife is the only county in Britain in which people have to pay tolls on the south as they enter and also on the north as they leave the bridge. Secondly, it is designed to end one of the early, expensive and unfortunate experiments in privatisation, as a result of which motorists crossing have to pay for the bridge four times over—as taxpayers, as ratepayers, as road tax payers and as toll payers. Thirdly, it is designed to remove one of the many Government-imposed barriers to the creation of jobs in Fife, where unemployment is rising faster than in almost any other part of the country.
The Bill also provides an opportunity for Conservative Members to fulfil at least one of their election promises to the people of Scotland. With broken promises on pensions and on rates high in their minds, Ministers may care to consider that more than 10 years ago, at exactly the same time as they promised to abolish domestic rates, the Conservatives gave a specific manifesto undertaking to abolish tolls on the Forth, Tay and Erskine bridges. Since their return to office in 1979, with tolls, as with rates, the Government's response to their long-standing commitment has been not to abolish the tolls but to double them, and then to attempt to raise them again—ignoring all respectable advice, including that of their own appointed officials, that the present system of charging tolls is unfair, inconsistent, inexplicable and economically unsound.
Tolls are unfair because some bridges, such as the Forth and Tay, are subject to tolls, while others, such as Kessock and Ballachulish in Scotland, and many more in England, are not. Tolls are inexplicable because the Government cannot satisfactorily explain to anyone the criteria whereby tolls are selectively imposed. Tolls are also illogical. Their only public justification is that there are exceptional benefits to users, but Ministers have never been able to define those benefits, because they are not definable.
The charging of tolls on the Forth and Tay bridges in particular is unfair, inconsistent and illogical because the roads involved, which the Government say offer exceptional benefits, are essential elements of our national road system. Eleven million vehicles cross the Forth bridge every year. It is indisputably an indispensable part of the British motorway system and it is listed as part of the European system of major roads. It is also the main northerly route for Britain's North sea oil-related traffic. What possible justification can the Government have for continuing to classify the Forth road bridge merely as a private road and accepting no responsibility for its debt, running and repair costs?
When the bridge was first conceived 40 years ago, the then Labour Government offered to pay £4⅔ million, which was 75 per cent. of the projected cost of building the bridge. By the time the bridge was completed, that contribution represented only one quarter of the final cost. If the Government were prepared to pay most of the cost in the 1940s when the economic benefits were perhaps


speculative, what explanation can the Government now give for their refusal even to reconsider the finances of a bridge which is clearly an essential element of our road system?
The toll system on the Forth is unsound for yet another reason. Uniquely, users of the Forth bridge contribute tolls not just to pay off the £13 million cost of the bridge but to pay off £6 million of debt accumulated in building 8 miles of motorway approach road—a stipulation which the Secretary of State's most recent investigator found extraordinary, unfair and unreasonable. As a result of all this, the Forth bridge, which cost £19 million to build 21 years ago, now has a larger debt than it had when it was completed. Even after 170 million cars have crossed it, paying £34 million in tolls, the debt continues to rise and there is no sign that this trend can ever be reversed.
The only legal constraint upon the Secretary of State when he seeks to push up tolls on the Tay bridge, as well as on the Forth, is the ritual public inquiry, which has become a circular exercise in self-justification. The Secretary of State recommends an increase, he appoints his own reporter to examine the recommendation, he receives the reporter's report and then accepts his original recommendation and raises the tolls.
These bridge tolls should be abolished because they are a tax not only on cars and on travel but on jobs and industry in Scotland. Last week, a monthly rise of exactly 5,000 was reported in the British unemployment figures and half of that increase was in Scotland. More serious than that, 14 per cent. of the overall increase was attributable to three constituencies close to the Forth bridge, including my own constituency, which make up only 0·5 per cent. of the British population.
For the first time ever, there are officially more than 20,000 unemployed in Fife, and I believe that the real figure is nearly 30,000. In the past six years, 12,500 jobs have been lost and as many jobs again are at risk as a result of the threat to Rosyth dockyard and to the mining industry in Fife. The Government's response to this record and rising level of unemployment has been to take from Fife £20 million in regional development grants over the next five years. The Secretary of State, in proposing toll increases, will be taking an additional £1 million in tax from the county of Fife and from bridge users.
The Government's only response to my plea for emergency help for areas in my constituency with 40 per cent. male unemployment was a letter saying that the unemployment figures did not justify a major initiative by the Government. How much higher must unemployment rise before the Government are moved to take action, whether by removing bridge tolls or through direct funding of job creation projects in Fife?
The Government's record on election promises in Scotland is appalling, as the Secretary of State and his Ministers know. The Secretary of State's reputation in London, as he well knows, is that not of Scotland's Minister in the Cabinet, but of a district commissioner for an economically derelict, electorally dispensable northern outpost. If it is within his power to make a small exception to the Government's disastrous record in Scotland, the Bill offers him that chance.
The Bill will bring an end to the expensive privatisation experiment on the Forth and Tay, which has gone so badly wrong, and provide for the future employment security of those who work on the bridge. The cost of abolishing tolls will be small, but the economic benefit in uninterrupted flow of traffic, cheaper fuel bills, reduced administrative overheads and in the encouragement of industry north of the Forth will be substantial.
Perhaps the journey of Conservative Ministers to meet their diminishing band of supporters at the Scottish conference in Perth will be a little easier if they can tell the conference that they will support the Bill, and that, although they cannot fulfil their most recent election promises to the Scottish people, they will at least honour the long-standing one to abolish tolls.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gordon Brown, Mr. Dick Douglas, Mr. Willie W. Hamilton, Mr. Harry Gourlay, Mr. Alexander Eadie, Mr. Tam Dalyell, Mr. Dennis Canavan, Mr. William McKelvey, Mr. John Maxton, Mr. David Marshall, Mr. Robert Hughes and Mr. Ernie Ross.

ABOLITION OF FORTH AND TAY ROAD BRIDGE TOLLS

Mr. Gordon Brown accordingly presented a Bill to abolish tolls on the Forth and Tay Road Bridges: And the same was read the First time; and ordered to be read a Second time upon Friday 10 May and to be printed. [Bill 143.]

Orders of the Day — Finance Bill

(Clauses Nos. 3, 10, 35, 40, 54, 64 and 87 and Schedules 12, 16 and 22)

Considered in Committee

[MR. HAROLD WALKER in the Chair]

Ordered,

That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 3, Clause 10, Clause 35, Clause 40, Clause 54, Schedule 12, Clause 64, Schedule 16, Clause 87 and Schedule 22.—[Mr. Peter Rees.]

Clause 3

HYDROCARBON OIL

Motion made, and Question proposed, That the clause stand part of the Bill.

Mr. Terry Davis: I wish to oppose the clause.
In his Budget speech on 19 March, the Chancellor of the Exchequer announced an increase of 4p per gallon in the tax on petrol and 3½p in the tax on derv. The clause puts those increases into effect.
At the time of his announcement the Chancellor explained that the increase in the tax on petrol and derv was in line with inflation. On such occasions, the Chancellor usually describes that as "indexing." He always uses that word as if it settled all argument and as if indexation were a mysterious fiscal force with which we interfere at our peril. If his argument is accepted at face value, it means that the relationships between one tax and another, between taxes and price levels, and between a tax and a commodity on which it is levied, are fixed, immutable and impossible to change. My hon. Friends and I do not agree.
We believe that it is important for the House to review such taxes from time to time and to consider whether the tax on a particular commodity or activity has been established at the right level. It is time for the House to take a hard look at the taxes on petrol and derv.
We must consider the taxes against the background of the statement of the Chancellor's predecessor, who said that petrol tax is "a selective expenditure tax".
We must also consider the taxes against what has happened since the Conservative Government took office in 1979. At that time the motorist paid about 88p for a gallon of petrol, and the tax was 40p. During the previous five years, both the price of petrol and the tax on petrol increased, but the tax was increased by less than the net price for a gallon of petrol—the price before tax—both in absolute terms and proportionately so that the tax accounted for 44 per cent. of the price at the pump. That was the position at the end of the Labour Government's term of office.
Since then we have had six years of Conservative Government. The pump price of a gallon of petrol has

continued to increase. Indeed, it has more than doubled. It has increased from 88p to more than £2. Conservative Chancellors have increased the tax even more sharply. The tax on a gallon of petrol has risen from 40p to £1·07. Under the Conservative Government, the tax on petrol has risen, again in absolute terms and proportionately, by more than the general rate of inflation. Most of the increase in the price of petrol has occurred as a direct result of those tax increases. Taxes now account for 54 per cent. of the price paid by the motorist compared with 44 per cent. six years ago. That is why we now pay £2 for a gallon of petrol.

Mr. D. N. Campbell-Savours: Does my hon. Friend agree that the wider nature of the deception that has taken place is that, on the one hand, Conservative Ministers talk on television about having reduced income tax while, on the other, they conveniently avoid referring to this draconian increase in tax, which affects the great majority of the population? Is that not a deception?

Mr. Davis: I agree with the thrust of my hon. Friend's intervention. It is a deception for the Chancellor and Treasury Ministers to appear on television and talk about reductions in taxes when they increase a tax which bears heavily on those with the lowest wages.
As a result of six years of Conservative Government. the price of a gallon of petrol is £2. The movement in prices and taxes on derv has been similar. Together, those taxes, as a proportion of the Government's revenue from all taxes, have risen from about 5·5 per cent. to more than 6 per cent.
The fact is that the Government are prejudiced against the private motorist. They are not interested in people who buy their own cars, drive their own cars and pay for their own petrol. They are interested only in people who have cars provided for them, not as a tool of their trade but as a perk of their position.
The Government's record on petrol tax is wholly indefensible. I am not surprised that Ministers are reluctant to come to the Dispatch Box today to explain why they are again increasing the price of petrol. They have already increased the price by more than they should have done, and there is no way that they can use what has happened in the past six years to justify the increase this year.
Nor can Ministers justify this year's increase by pointing to what has happened since they increased the tax a year ago. In recent months, we have seen a massive increase in the price of petrol at the pump, thanks to price increases by all the major oil companies. When we debated the issue in Committee a year ago, the motorist paid about £1.70 a gallon. Now he pays £2 without the Chancellor's tax increase, and with it he pays £2.04. Even without the Chancellor's help, the price of a gallon of petrol has risen by 18 per cent. during the past year—more than three times the general level of inflation. In those circumstances, it is not unreasonable to expect the Chancellor of the Exchequer to forgo any further increase in tax, for this year at least.
Surely we all accept that increases in the prices of petrol and den, are a direct cause of inflation? At a time when inflation is beginning to creep up again, it is common sense for the Chancellor to do everything he can to avoid making it worse. If he is serious about achieving zero inflation, even Ire must understand that it will never be achieved if he increases taxes for the coming year in line with inflation during the past year.
The impact of the tax is selective. It was the Chancellor's predecessor, the right hon. and learned Member for Surrey, East (Sir G. Howe), who described it as a selective tax,
deliberately biased against those living in rural areas
and
deliberately biased against those who have no option about the method by which they travel to work".—[Official Report, 9 May 1977; Vol. 931, c. 937.]
The Government's record in the past six years shows that they, too, are biased against people who have no option about the method by which they travel to work and against people living in rural areas.
It is not only the people living in rural areas who are affected by the tax on petrol, but it is true that they are affected even more than people living elsewhere. For many people in rural areas there is no alternative to using a car. That is why some of the areas with the lowest average incomes have the highest levels of car ownership. I thought that the Chancellor was claiming in his Budget that he wanted to help people on low wages. What is the point of reducing their national insurance contribution with one hand if with the other hand he insists on increasing the cost of getting to work? Where is the incentive in that? Indeed, why work? But it is not only a matter of getting to work. Children have to be taken to school, people have to get to the shops, to the post office and to the chemist. For people in rural areas, the car is not a luxury; it is an absolute necessity for getting anywhere.
The car is also increasingly becoming a necessity for many people living in urban areas and the suburbs, not least as a result of the Government's attack on bus services through the "Abolition of Public Transport Bill." In short, the Chancellor and the Government do not seem to understand that driving is not in the same category as drinking, smoking and gambling. Taxes on petrol and derv should not be increased automatically—almost casually—by the Chancellor, without thought, without any regard for inflation and without any regard for those people for whom a car is a necessity. That is why we want to delete the clause from the Bill.

Mr. Austin Mitchell: I support the extremely perceptive and effective attack on the clause by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis). We shall be voting against it for several reasons.
The Government's position on the measure seems to be to pass it off as the normal kind of adjustment for inflation, and nothing to bother about—a simple updating of the figures. They are trying to pass it off as something which need not excite any interest or attention. If the Conservative party were in opposition and a similar increase had been proposed by a Labour Government, the Conservative Benches would have been crammed; instead, they are almost empty, giving the impression that there is nothing abnormal about the clause.
The increase in the duty on petrol comes on top of the massive jump in petrol prices which, as my hon. Friend said, has occurred this year. The oil companies seem to get it both ways. When the dollar goes up, they increase the price of petrol at the pump to allow for the increase in the dollar. When the dollar comes down—and it will almost

certainly come down even further—there is no corresponding reduction in the price of petrol. The ratchet works only upwards and in favour of the oil companies.
5.45 pm
The dramatic price increase this year has brought us to the £2 gallon of petrol; indeed, in Grimsby, it is over £2. In Grimsby, petrol prices at the pump are substantially higher than in other parts of the country because of the nature of the distribution system. We have within a few miles of Grimsby a major refinery, and our petrol comes from that refinery, but it is still dearer to buy in Grimsby than in areas that are more remote from that refinery.
A gallon of petrol at the Texaco pump in Grimsby costs 204·6p; at the Total pump it costs 203·7p. That is substantially higher than the price that motorists have to pay in the major conurbations; therefore, a grievance will be exacerbated by the increase. The grievance will be felt even more strongly with the elimination of public transport as a result of the Transport Bill.
Public transport has to be cost-subsidised in an age when more and more people have cars. There will be an increasing need for cars as the major carriers, exposed to the pressures of unreasonable competition as a result of the Transport Bill, are forced to increase their prices. The clause has to be smuggled through, as it were, before the disastrous effects of the Transport Bill are felt.
Had the increase been proposed by a Labour Government, there would have been substantial howls of outrage from Conservative Members. The Labour Government's record in increasing taxation on petrol, although it aroused massive outcries from the Conservative party, then in opposition, was far better than that of the Conservative Government. The Labour Government's approach was far more sensible and far more moderate and did not involve the massive increases in petrol taxation which have been carried through by the present Government.
The previous Chancellor of the Exchequer pleaded that he was simply bringing our petrol prices into line with those in other parts of Europe. Since then, prices in Britain have increased to the point where they are ahead of those in several European countries. In the last quarter of last year, the average petrol price at the then prevailing exchange rate, for 4-star or equivalent petrol, was 42p per litre in the United Kingdom. The price has increased substantially since then. In Grimsby it is now 45p per litre. That compares with 36p per litre in Luxembourg and 39·2p per litre in West Germany.
Thanks to the efforts of the Conservative Government, we now have expensive petrol in Britain, and the Government seem to regard the car as a luxury. In places such as Grimsby and in the surrounding country, the car is an absolute necessity for getting to work and for getting around. It is necessary even to get the children to school, given the running down of rural bus services.

Mr. Richard Wainwright: The hon. Gentleman is making a powerful plea for market forces to be allowed to have their way. He has just praised, by inference, European countries where market forces rule. Does it not enter his mind that where a commodity is accepted as being both essential and strictly finite in the quantity available there might just be a case for introducing some planning and, through the tax system, some measure of Government interference?

Mr. Mitchell: The Liberal party now seems to be arguing for higher duties on petrol, whereas in 1977 it used its participation in the Lib-Lab pact to argue for lower duties. It is an example of the intellectual equivocation in which the Liberal party indulges from time to time. There is a case for adjusting the duties in the light of the heavy increase in petrol prices that has occurred in the past year. The hon. Member for Colne Valley (Mr. Wainwright) described petrol as a finite resource. He should read the article by Professor Odell in the latest Lloyd's Bank Review. Professor Odell tells us that petrol reserves increase year by year. The cry that we should tax a finite resource to discourage use is one which I cannot accept. It runs exactly contrary to my argument.
The increase in total tax on petrol, including VAT, has been 67p in the Government's lifetime. The tax take, including VAT, that they inherited from the previous Labour Government was 39·9p per gallon in May 1979 and it is now 106·7p. That is a ludicrous level of tax, including VAT, when we consider that the £2 gallon is with us.
We must vote against the clause as a protest on behalf of the average motorist. The business user will not be hit by the Government's proposals; he is the friend of the Government and he is heavily subsidised by them. He will not feel the effects of the increase in price. The Opposition speak for the average motorist, many of whom have older cars and live in areas where there is inadequate public transport. For many such motorists their car is a daily necessity of life and they are finding the costs of motoring an increasingly difficult burden to bear, especially in the light of the petrol price increases which have been sanctioned by the Government and which are now to be supplemented and heightened by the proposals in the clause.

Mr. Campbell-Savours: The intervention of the hon. Member for Colne Valley (Mr. Wainwright) was fascinating. It revealed current thinking in the Liberal party on what its position should be on items that are scarce. Apparently the hon. Gentleman thinks that taxation of a finite resource is a way of dealing with price and supply. That is exactly the argument that would be deployed for charging higher prices in times of food famine. I find it hard to believe that the Liberal party would wish to subscribe to such a crude use of market forces in the curtailment of demand. However, the hon. Gentleman's intervention is on the record, and unless he seeks to intervene in the debate we must take it that that is his finite position. Indeed, it will so be pressed at the time of the next general election.
The price of diesel has strong regional industrial cost implications. When the Minister replies he should address himself to the argument that I am about to advance, which is advanced also by many in industry, especially in manufacturing industry, who are not within our central conurbations. I understand from the excellent presentation of my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) that 47½ per cent. of the price of diesel is tax and that the tax take has risen from 41·9p in 1979 to 93·4p in 1985, which is substantially more than double.
Who is affected by the increased tax take? We know that a small minority of the population has diesel cars. The greatest consumer of diesel or derv is industry. The larger the capacity of a heavy vehicle and the further that that vehicle has to travel to deliver the goods which it carries

from the point of manufacture or distribution to the point of receipt—for example, the retailer or central wholesaler—the greater are the costs that fall upon industry. If a bed manufacturer in Slough, for example, sends a container of beds to London, he will pay far less for the distributiion of the beds than a similar manufacturer in Cumbria, the north of Scotland or Wales, because the distance travelled by the lorry will be further when it leaves the manufacturer in Cumbria, the north of Scotland or Wales.
When we impose higher taxes on diesel, we are increasing disproportionately the costs that fall on the industries which exist far from the centres of population and our central markets. Inbuilt in the price of diesel should be a form of regional consideration which takes into account the special problems within manufacturing industry in the regions.
I took the example of a bed manfacturer for a particular reason. The bulkier the goods, the more aggravated becomes the condition. Almost invariably the bulkier the goods, the lower the price of the load. That means that the cost of transporting the load from a major plant in the regions back to the central area is proportionately greater. That must apply when it is transported to our main conurbations and our principal markets. These are considerations which Governments should take into account when formulating policy on the price of diesel.
The inbuilt regional disincentive is aggravated further by the tax increase which has been imposed on heavy vehicles. It is so large that it will lead to an increase in costs for manufacturing industry that will be disproportionate in the outer regions. The calculations which were undertaken by a newspaper—I hope that they are accurate—show that the tax increases imposed on the operators of heavy lorries have been between 9 per cent. and 29 per cent. For a 15 to 17-tonne lorry, the rate of duty will increase from £850 to £1,330, a 21·1 per cent. increase. For a three-axle, 23 to 25-tonne lorry, duty will be increased from £1,250 to £1,610, a 28·8 per cent. increase. For a 29 to 31-tonne vehicle with four axles, duty will be increased from £2,100 to £2,420, a 15·2 per cent. increase.
These figures have a direct bearing on the clause because collectively they operate to the disadvantage of producers in the regions who have to carry higher and higher costs. To go on and on about environmental damage and the need for hauliers to pay for the environmental damage that they inflict is entirely to ignore the impact upon hauliers of the new regime of taxation. It might seem that I am taking a minority position and that hauliers, with their large trucks, might be unpopular environmentally. However, they are extremely popular in areas where their work is essential in servicing the infrastructure of manufacturing industry, which are invariably areas of high unemployment.
When introducing his Budget the Chancellor of the Exchequer said that his proposals for heavy lorries would deal with the environmental damage that they cause. However, I hope that the Minister who replies will take into account the arguments that I have endeavoured to advance, which will be echoed by hauliers throughout the regions of the United Kingdom, and certainly in my constituency.
One of the most remarkable features of the past few years has been the public's complete lack of response to the substantial increases of tax levied on petrol. It has


increased from 39·9p to 106·7p a gallon, or 167 per cent. That is substantially greater than the rate of inflation during the same period. My hon. Friend the Member for Great Grimsby (Mr. Mitchell) mentioned the differential of 1p in the price of petrol at garages in his part of the country.

Mr. Austin Mitchell: My point chimes in with what my hon. Friend said about derv. The increase in the tax on petrol and derv is an especially heavy burden on parts of the country such as we represent as we depend heavily on transport. In my part of the country, motorists already pay substantially more on average for petrol, even at discount garages, than do motorists in metropolitan areas.

6 pm

Mr. Campbell-Savours: I am not convinced that we are paying substantially more. I remember when we were paying substantially more. I can remember differentials of 10p or even 15p a gallon between parts of Scotland, the north-east, Cumbria, the midlands and the south. The differentials still exist, but they are small—only 1p or 2p. Why are there no longer large differentials? Is an unofficial cartel in operation in the market? Have petroleum producers agreed to ensure that competition is not so strong that their margins are interfered with?
I have read reports today that petrol companies are beginning to get back into profitability. Will that have a bearing on prices paid by consumers? If there is an unofficial agreement between petroleum manufacturers and distributors, that may constitute an anticompetitive practice under the terms of the Competition Act 1980. That Act provided that, when it could be established by the Director General of Fair Trading that an anticompetitive practice existed, the Secretary of State could act to stop it.
Will the Minister consider whether there is scope for a reference under the 1980 Act to establish whether an anticompetitive practice is being run? If there is, the public must be informed. It would not be in the public interest to retain it. The only person who can know whether there is such a cartel is the Minister as he has privileged access to information. Britain does not have a monitoring programme to ensure that the public interest is protected. In the present conditions of reducing competition, the Government should seriously consider such a programme to protect the public.
We should consider the effect of increased taxation on rural dwellers. Many of them travel substantially more than the 9,500 miles a year which motoring organisations regard as average. Those who cannot afford to use cars must use buses. They are now required to bear the brunt of a succession of Government initiatives on bus policy.
We had the cut in bus grant in 1981, which damaged the ability of municipal undertakings and bus operators to buy buses, and there has been a cut in transport supplementary grant, which has an effect on revenue support for buses in rural areas. The buses Bill is in Committee and also affects rural areas. We should bear in mind all of those measures when considering the Budget.
This is one year when the Government could have forsaken tax increases such as these to safeguard regional industry and the interests of the travelling public. They have failed to do so, and the public will now have to decide what to do about it.

Mr. Stuart Randall: I should like to speak as a Socialist who represents a deprived part of the country where male unemployment is about 20·6 per cent. and where there is unusually low car usage. I know from my constituents that the Government's imposition of tax on petrol, which has led to a £2 gallon, has hit them hard, especially the less well off and those who live on unemployment benefit.
It now costs £16 or £18 to fill the tank of a small family car. For people earning perhaps £60 a week, that is a substantial proportion of their income. As my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) said, a car is no longer a luxury. It is a necessity, especially for people who live in rural areas. Bus services have been reduced in many rural areas. Many people, especially the elderly and those on pensions, face difficulties when they have to go to the chemist to collect a prescription. The increase in petrol prices has hit them pretty hard.
People who live on family income supplement simply cannot afford to fill up the petrol tank after having paid the other bills associated with owning a necessary car. The Government have increased taxation far more quickly than did the Labour Administration.
Let me examine Government revenue, using 1975 prices. In 1974–75, Government revenue from taxation on petrol and derv was just over £1·5 billion. When the Labour Government left office in 1978–79, the figure had dropped to about £1·4 billion. Now, in 1985–86, with the increases referred to in the Bill, the revenue has gone up to £2 billion. At constant 1975 prices, that is an increase of about 43 per cent. I believe that people in my constituency are pretty unhappy about that increase.
In west Hull we also have industries. Hull is a pretty entrepreneurial place. It always had a fairly wide base of industries. We all know that these days we have to keep costs down to be able to employ people and make profits. The increases in fuel costs which the Government have created through higher taxation mean that our industries are less able to compete with countries in Europe and with the United States. Those who have been in the United States will realise how low the cost of fuel is there compared with this country.
In the Bill, the Government do not encourage the use of derv. At the moment the Government are not showing discrimination in favour of a fuel which is basically very economical. There is now an increase in the number of private cars using diesel. There is the disadvantage of the diesel knock and lower performance than one gets with a car using petrol, but I should like the Government to take steps to encourage the use of diesel cars. The gap that one saw even as recently as a year ago is being eroded. That is very sad, because there are strong environmental arguments, which I shall not develop now, but which are important, for using diesel fuel.
The point touched on by my hon. Friend the Member for Workington (Mr. Campbell-Savours) is also important. At the moment the regions could be helped, particularly when one takes into account the way in which industry has moved to the south and the way in which the regeneration of industry seems to be taking place in the south rather than in the north.
If one looks at the total tax on petrol and derv, including VAT, one can see that from May 1979 to May 1985, in pence terms, the increase in petrol has been 67p, and the


increase in derv 52p. I ask the Minister to consider widening that gap so that there is greater discrimination in favour of diesel vehicles, for the reasons that I have given.

Mr. Campbell-Savours: Is my hon. Friend aware that another system is used by the Icelanders, and by people in some other countries, too, whereby a substantially greater cost is attributed to the tax disc, and the price at which diesel is made available is the heating oil price? The effect is that high user vehicles are invariably diesel and there is an incentive for manufacturers to ensure that their representatives are provided with diesel vehicles, with the consequent effect on the environment.

Mr. Randall: I am grateful for my hon. Friend's intervention. With a diesel vehicle, one has a higher capital cost and supposedly a low running cost. What seems to be happening is that the running costs are becoming closer to those of petrol vehicles, so that it takes longer to write off the higher capital cost. I see that as a disincentive for people to use diesel vehicles. The essence of a diesel vehicle is that it is more economical over longer distances.
6.15 pm
The Government have claimed that the increases that we have had have been essentially to match inflation. I understand that the tax increase in petrol and diesel alone amounts to only about £250 million. Bearing in mind the large increases in petrol and oil costs, I would have hoped that this time the Government would help people and industry, and encourage the improvement of the environment, by using the revenues in a way that would not cause people hardship, would not be a disincentive to using diesel, and would not impose high costs on industry.

Mr. Mark Fisher: It is suitable that we are starting our consideration of the Committee stage of the Finance Bill with clause 3, because in this one clause we see the Government raising taxes, particularly indirect taxes, which will hit hardest the lowest paid and people on low incomes in our communities, hindering rather than helping small business, in spite of what the Prime Minister professed in her statement this weekend, and also hindering and hitting rural areas. Those are all things about which we shall continually hear throughout our deliberations in Committee. Therefore, it is suitable that we start with a clause which exemplifies so many of the things that are wrong with the Finance Bill. After that opening statement, the House will not be surprised to learn that the Opposition will oppose the clause, as we shall oppose the Bill all the way through.
I am sure that it has not escaped your notice, Mr. Crouch, that the Government Benches are not packed with hon. Members who are anxious to speak in favour of the clause. Indeed, we have been debating it for more than an hour, and not a single argument has been voiced in support of increasing oil taxes. I suspect that the Minister will be the only person who can rustle up even half an argument in favour of the Government's proposals in the clause. He will lose the argument on this debate and this part of the Bill, although he may hope to carry his hon. Friends with him in the Lobby afterwards.
It is suitable that we are starting with this clause not only because it exemplifies so much that is wrong but because it is about oil. The whole of the Chancellor's

Budget, and, indeed, his whole financial strategy, is totally dependent this year, more than any year. on oil. The extreme windfall of the weakness of the pound has increased the money available to the Chancellor from an estimated £9½ billion to £12½ billion. Credit is not due to the Government for that windfall; it was not created by their economic management. It is a windfall of £2½ billion or £3½ billion depending on the level of the pound against the dollar on any day. But for that, the Government would be revealed in the Finance Bill and the Budget as not having an economic strategy, and their failure would be even more obvious and blatant.
The clause is appropriate also because oil has been, apart from the Government's biggest windfall, their biggest failure. Their inability to harness the benefits of that oil to the advantage of the people and manufacturing industry will be the thing most remembered about them in the years to come. In the past six years—many Conservative Members know this, have recognised it and have spoken about it, particularly outside the House, although occasionally they have had the courage to do so inside—the Government have squandered every penny earned from North sea oil. No matter how much they put up the taxes, it will be to the discredit and detriment of manufacturing industry that the Government have maintained such a policy.
The Government have chosen to use oil as a weapon against inflation and to control the supply of money. They have not chosen to invest in infrastructure, and in the manufacturing infrastructure in particular. Every sane Member, on either side of the House, knows what the Government should have done with the oil wealth. The hon. Member for Fareham (Mr. Lloyd) does not seem to believe that that is true, but as a Whip he should know more than anybody else what Conservative Back Benchers feel. He must know that they recognise the desperate and tragic waste of oil revenue over which the Government have presided.
The increase in petrol tax levied by the clause brings the increase in petrol tax for the past six years to 167 per cent. Members of the public may be interested to know that when they buy their petrol at around £2 a gallon, £1·06 goes to the Government. As they do that every day and see over 50 per cent. of the cost of their petrol going to the Government, they might ask themselves what the Government are doing with those taxes and to what extent industry is benefiting from the use of those taxes by the Government.
I am anxious to hear what the Minister will say in defence of this provision. In particular, when he comes to defend this sad but mercifully brief clause in a long Bill, will he explain what research his civil servants have done on the transport costs to manufacturing industry? Will he own up to the fact that there will be knock-on effects for small businesses and for businesses located in rural areas? What will be the impact on transport costs, and therefore on unit costs?
In addition, will the Minister speculate on how far he thinks he can go in milking this sector of tax? The Government are searching for tax revenue, but are reluctant to face the issue of direct taxation. Therefore, will we see the £2.25 per gallon in the lifetime of this Government, or will it cost even more?
I say this more in hope than expectation. The Committee should vote against the clause because it shows that the Government are committed to being the party of


higher taxation. It puts up tax, and does not help industry or the small businesses which the Prime Minister has said she wishes to help. She must know that, by putting up petrol costs, and therefore transport and distribution costs, for the small businesses which she hypocritically claims she wishes to see get off the ground, she is making it more difficult, not easier, for them to prosper. I hope that we shall see the end of the clause, and I look forward to seeing how the Minister can possibly defend his party—the party of high taxation.

The Minister of State, Treasury (Mr. Barney Hayhoe): I welcome you, Mr. Crouch, to the Chair during our considerations on the Finance Bill. I trust that you do not have to occupy it for quite as long as some of your predecessors did last year.
The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) said that it was appropriate to begin our discussions with this clause. I do not dissent from what he said in that regard, although I do not accept many of the exaggerated and rather absurd arguments that he then deployed.
It was interesting to see the hon. Member go through the ritualistic assertions always made by the Opposition—certainly made by my hon. Friends when we were in opposition—that the Government are rather short of supporters in these debates, and the Opposition are providing most of the content of the debate. I have heard this ritualistic charge made before. I hope that I shall continue hearing it made by Labour Members on Opposition Benches to Conservative Members on Government Benches for many years to come.
As the hon. Member for Birmingham, Hodge Hill (Mr. Davis) acknowledged, the increases imposed by this clause maintain the real value of the yield from oil duties. As my right hon. Friend the Chancellor said in his Budget speech, they do no more than keep pace with inflation. I can confirm to the hon. Member for Kingston upon Hull, West (Mr. Randall) that the increases are expected to increase revenue in a full year by £250 million, although I would not agree with his comment that it was "only" £250 million. It is a sizeable sum, of which petrol will yield £200 million and derv £50 million.
The immediate effect of the duty increases on the retail price index is about one tenth of 1 per cent. This is solely due to the petrol increase because derv is not represented in the RPI, although there is an indirect effect which is difficult to quantify and depends on the extent to which, and how rapidly, businesses pass on the increased fuel costs to their customers.
The increases on petrol and derv are no more than are required to revalorise the duty, having regard to the RPI movement during the past year. The oil duty is a significant revenue raiser, the total estimated yield being nearly £6·5 billion in 1985–86. It would be difficult to raise an equivalent amount of revenue elsewhere, and successive Governments have always seen oil as a source of considerable revenue.
In view of the comments that have been made, I shall compare what happened here to what happened in Europe. The advice that I have received is that, as a result of the increases in this Budget, the total tax burden—that is duty plus VAT—remains in real terms below the peak reached in 1975, under the last Labour Government. My hon. Friends who have been listening to the debate will be

rather surprised, in view of the comments that have been made, to hear that, despite the significant increases that I accept have been made, in real terms we have not returned to the peak achieved at the end of 1974 and early 1975.
I never like to use statistics unfairly. We can all trade statistics, and I wish only to get the matter into perspective. I accept that there was a sharp peak, from which the price came down.

Mr. Campbell-Savours: That is not true.

Mr. Hayhoe: I would be prepared to produce the figures that I have been given on this by the officials who have worked them out. In real terms, taking the duty at 1985–86 prices, the typical total tax burden per litre is 23·80p at present and was 24·47p at the end of 1974 and the beginning of 1975. In 1970–71, it was a little higher at 25p.

Mr. Terry Davis: When the Minister asks his officials to produce those figures, will he also ask them to reconcile their figures with those contained in the 75th annual report of the Customs and Excise, which show that total net receipts for all hydrocarbon oil duties in 1974, at 1975 prices, were £1,549 million? In 1975, the figure was £1,227 million and in 1985 it will be £1,945 million. I do not expect the Minister to answer my point now, but perhaps he will ask his officials to explain those conflicting figures in the public document.

Mr. Hayhoe: On consideration, the hon. Gentleman will realise that there is no discrepancy in what we are saying. He is giving total annual figures whereas I was giving a peak figure, which arose when VAT was increased to 25 per cent. at the end of 1974. For a short time, that created an extremely high figure for the total burden. I said that, in comparison, the peak figure attained under the Labour Government was marginally higher than the present figure.
The European comparison, which is also important, was mentioned by the hon. Member for Great Grimsby (Mr. Mitchell) and others. Britain is still fairly low in the European league table. If we consider the retail price of petrol sold at the pump, the price in Britain is below that of Belgium, Denmark, France, Ireland and Italy. If we consider tax as a percentage of the retail selling price, Britain is below the Netherlands, Italy, Ireland, France and Denmark, and just above Belgium.
I have little doubt that, by an ingenious use of the figures, those who would wish to make such a comparison will find that, in some aspects, Britain is higher in the table.

Mr. Campbell-Savours: What about the duty on derv?

Mr. Hayhoe: I am talking now about petrol. The figures for derv are different. One is often aware of the points that the hon. Gentleman will raise before he makes them, and I shall say something about derv in a moment.

Mr. Fisher: I am grateful to the Minister for mentioning tax as a percentage of retail price. Although I am sure that his European comparisons are correct, does he accept that a comparison of the percentage when his Government came to power in 1979 and now is not flattering to the Government? I estimate that the present percentage is about 52 or 53 per cent. of the retail price, whereas in 1979 it was about 39 per cent.

Mr. Hayhoe: It was not 39 per cent. but about 49 per cent. of the retail price in 1978–79. In 1979–80, it was 47 per cent., and then it increased, as the hon. Gentleman said, to the present figure of 53 per cent. However, if he puts down a question, I will gladly confirm those figures or make any necessary corrections. They are the figures that I have in front of me today.
The hon. Members for Workington (Mr. Campbell-Savours) and for Kingston upon Hull, West mentioned the derv-petrol duty differential. The duty differential in favour of derv has been widened marginally from 14p a gallon to 14·6p a gallon, including VAT, which leaves it unchanged in real terms. Therefore, it has not narrowed, as the hon. Member for Kingston upon Hull, West alleged. The differential takes account of the continued need to limit the impact of duty increases on business and distribution costs. However, derv must continue to make a considerable contribution, in the Chancellor's judgment, to the overall yield from motoring taxes. Erosion of the revenue must be contained, and industrial as well as private consumers must be encouraged to use oil efficiently.
To take the point that the hon. Member for Workington had in mind, it is true that the duty on derv in the United Kingdom is almost the highest in the Community. However, we must consider such matters in the round. Several EC countries with low derv duties have higher rates of VAT than does the United Kingdom, and they incorporate provisions in their VAT regimes which prevent VAT from being recoverable as input tax. The block on reclaiming VAT paid on derv applies in several European countries. That complicates the comparison, because, as the hon. Gentleman will know, in Britain it is possible for the VAT paid on derv or on petrol that is used for business to be reclaimed.
The total tax burden on derv is about 93·4p a gallon, but the duty only is 68·9p. The difference of about 24p a gallon is the VAT charge, which is reclaimable.

Mr. Campbell-Savours: Is it not fair and reasonable that, after those considerations have been taken into account, British manufacturing industry should not have to pay a higher net price for diesel than do our European Community partners? Is it not true that, after one has taken into account the complications to which the Minister referred, British firms still pay a higher price for diesel than do firms in other Community countries?

Mr. Hayhoe: I shall have to check that——

Mr. Campbell-Savours: The Minister should know.

Mr. Hayhoe: I do not have the details in front of me, and I wish, as always, to give precise figures to the hon. Gentleman. I can tell him that, in some European countries, the rates for vehicle excise duty—the disc to which the hon. Gentleman referred—on diesel-engined vehicles is higher than those for petrol-engined vehicles. The comparisons are complicated. If the hon. Gentleman tables a question, I should be happy to set this out in tabular form to try to get all the factors together.

Mr. Campbell-Savours: Is not the Minister misleading the Committee? As though to excuse the regime in the United Kingdom, he referred to one group of vehicles, but he did not say that those vehicles were motor cars. We are not discussing motor cars; we are discussing commercial vehicles, and in that sector his argument does not hold water.

Mr. Hayhoe: I am not trying to excuse the position in the United Kingdom. If I wanted to make party points, I would say that, in 1977, instead of there being a reverse differential on duty in favour of derv, there was a reverse differential of 5p a gallon, in the money terms of the day—it was a considerable difference—against derv. The hon. Member for Workington should look at all these aspects in the round. If he seeks to be fair—I know that he often does—he will see—[Interruption.] I hope that I do not do the hon. Gentleman a great disservice by saying that, even occasionally, he seeks to be fair. I shall withdraw that expression instantly if the hon. Gentleman is worried. I thought that he had been reselected.
The debate has been extremely useful, and I am grateful to the hon. Member for Hodge Hill for initiating it. This aspect is an important part of our taxation regime, and it was right to have a short debate on it. I commend clause 3 to hon. Members, and I hope that it will be carried by a substantial majority.

Mr. Terry Davis: I, too, welcome you to the Chair, Mr. Crouch.
As the Minister has said, we have had a short debate on this issue. Let us hope that all our debates will be as short. If other Treasury Ministers conduct themselves with as much good humour and equanimity as the Minister of State, I am sure that the whole debate will be brief.
I disagree fundamentally with the Minister of State. The hon. Gentleman said that the Chancellor was "required" to increase these taxes. The Chancellor is not required to increase them. He is not required to revalorise them. There is nothing inexorable about these increases. It is a political decision. It is a decision about priorities. We are not talking about the abolition of petrol tax, as the Minister seemed to imply, but we oppose this particular increase.
I agree that it is a considerable sum—£250 million for petrol, and £50 million for derv. Those significant sums should not be raised in this way. The Minister said that my hon. Friend the Member for Workington (Mr. Campbell-Savours) had a habit of putting points that could always be anticipated. I must admit that I expected the Minister to ask me how we would pay for the abolition of this increase this year, and I will now tell him. We would not ease capital gains tax for those who make a profit of £6,000 or more a year at a cost of £150 million. We would not abolish development land tax for those who make a profit of £75,000 a year from property development at a cost of £50 million. Those sums alone amount to the sum that the Chancellor will obtain from increasing the price of petrol without any regard for those on low wages in rural, urban and suburban areas who have no alternative but to use private cars. This is a political decision. It is a choice of priorities by the Chancellor to increase the tax on petrol, reduce the tax take from capital gains and abolish development land tax.
The Minister made comparisons with Europe. When Conservative Treasury Ministers make comparisions with Europe instead of with their predecessors—the Labour Government—I know that we have won the argument. Therefore, I and my hon. Friends will vote against the clause.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 220, Noes 119.

Division No. 198]
[6.43 pm


AYES


Alexander, Richard
Hawkins, Sir Paul (SW N'folk)


Alison, Rt Hon Michael
Hayes, J.


Ancram, Michael
Hayhoe, Barney


Arnold, Tom
Hayward, Robert


Ashby, David
Heddle, John


Aspinwall, Jack
Henderson, Barry


Atkins, Rt Hon Sir H.
Hickmet, Richard


Atkins, Robert (South Ribble)
Higgins, Rt Hon Terence L.


Baker, Nicholas (N Dorset)
Hind, Kenneth


Banks, Robert (Harrogate)
Hirst, Michael


Batiste, Spencer
Holt, Richard


Beaumont-Dark, Anthony
Howarth, Alan (Stratf'd-on-A)


Benyon, William
Howarth, Gerald (Cannock)


Best, Keith
Howell, Ralph (N Norfolk)


Blackburn, John
Hunt, David (Wirral)


Body, Richard
Irving, Charles


Boscawen, Hon Robert
Jackson, Robert


Bottomley, Peter
Jessel, Toby


Bottomley, Mrs Virginia
Johnson Smith, Sir Geoffrey


Bowden, A. (Brighton K'to'n)
Jones, Gwilym (Cardiff N)


Bowden, Gerald (Dulwich)
Jones, Robert (W Herts)


Braine, Rt Hon Sir Bernard
King, Roger (B'ham N'field)


Brandon-Bravo, Martin
Knight, Mrs Jill (Edgbaston)


Bright, Graham
Lamont, Norman


Brinton, Tim
Lang, Ian


Brown, M. (Brigg &amp; Cl'thpes)
Lawrence, Ivan


Browne, John
Lee, John (Pendle)


Bruinvels, Peter
Leigh, Edward (Gainsbor'gh)


Bryan, Sir Paul
Lennox-Boyd, Hon Mark


Buck, Sir Antony
Lester, Jim


Budgen, Nick
Lewis, Sir Kenneth (Stamf'd)


Bulmer, Esmond
Lilley, Peter


Burt, Alistair
Lloyd, Ian (Havant)


Carlisle, John (N Luton)
Lloyd, Peter, (Fareham)


Carlisle, Kenneth (Lincoln)
Lord, Michael


Carlisle, Rt Hon M. (W'ton S)
Luce, Richard


Carttiss, Michael
Lyell, Nicholas


Cash, William
McCurley, Mrs Anna


Chalker, Mrs Lynda
Macfarlane, Neil


Chope, Christopher
Maclean, David John


Clark, Dr Michael (Rochford)
McNair-Wilson, P. (New F'st)


Clarke, Rt Hon K. (Rushcliffe)
Major, John


Cockeram, Eric
Malins, Humfrey


Coombs, Simon
Malone, Gerald


Cope, John
Marlow, Antony


Cormack, Patrick
Mates, Michael


Couchman, James
Mather, Carol


Critchley, Julian
Mawhinney, Dr Brian


Currie, Mrs Edwina
May hew, Sir Patrick


Dickens, Geoffrey
Merchant, Piers


Dorrell, Stephen
Miller, Hal (B'grove)


Douglas-Hamilton, Lord J.
Mills, lain (Meriden)


Dover, Den
Mills, Sir Peter (West Devon)


Dunn, Robert
Mitchell, David (NW Hants)


Dykes, Hugh
Montgomery, Sir Fergus


Evennett, David
Moore, John


Eyre, Sir Reginald
Morris, M. (N'hampton, S)


Fallon, Michael
Morrison, Hon C. (Devizes)


Favell, Anthony
Moynihan, Hon C.


Fletcher, Alexander
Nelson, Anthony


Forman, Nigel
Newton, Tony


Forth, Eric
Nicholls, Patrick


Fowler, Rt Hon Norman
Norris, Steven


Fox, Marcus
Oppenheim, Phillip


Gale, Roger
Oppenheim, Rt Hon Mrs S.


Galley, Roy
Osborn, Sir John


Garel-Jones, Tristan
Ottaway, Richard


Goodhart, Sir Philip
Page, Sir John (Harrow W)


Gower, Sir Raymond
Parkinson, Rt Hon Cecil


Greenway, Harry
Parris, Matthew


Griffiths, E. (B'y St Edm'ds)
Percival, Rt Hon Sir Ian


Grylls, Michael
Pollock, Alexander


Hamilton, Hon A. (Epsom)
Portillo, Michael


Hannam, John
Powell, William (Corby)


Hargreaves, Kenneth
Powley, John


Harris, David
Prentice, Rt Hon Reg


Harvey, Robert
Price, Sir David


Haselhurst, Alan
Pym, Rt Hon Francis





Raffan, Keith
Thomas, Rt Hon Peter


Raison, Rt Hon Timothy
Thompson, Donald (Calder V)


Rees, Rt Hon Peter (Dover)
Thompson, Patrick (N'ich N)


Rhodes James, Robert
Thorne, Neil (llford S)


Ridsdale, Sir Julian
Thornton, Malcolm


Rippon, Rt Hon Geoffrey
Thurnham, Peter


Roberts, Wyn (Conwy)
Townend, John (Bridlington)


Robinson, Mark (N'port W)
Tracey, Richard


Roe, Mrs Marion
Twinn, Dr Ian


Rowe, Andrew
van Straubenzee, Sir W.


Ryder, Richard
Viggers, Peter


Sackville, Hon Thomas
Waddington, David


Sayeed, Jonathan
Wakeham, Rt Hon John


Shaw, Giles (Pudsey)
Waller, Gary


Shaw, Sir Michael (Scarb')
Ward, John


Shelton, William (Streatham)
Wardle, C. (Bexhill)


Shepherd, Colin (Hereford)
Watson, John


Shepherd, Richard (Aldridge)
Watts, John


Silvester, Fred
Wells, Bowen (Hertford)


Sims, Roger
Wells, Sir John (Maidstone)


Skeet, T. H. H.
Wheeler, John


Smith, Tim (Beaconsfield)
Whitfield, John


Soames, Hon Nicholas
Whitney, Raymond


Speller, Tony
Wiggin, Jerry


Spencer, Derek
Winterton, Mrs Ann


Spicer, Michael (S Worcs)
Winterton, Nicholas


Stanbrook, Ivor
Wolfson, Mark


Steen, Anthony
Wood, Timothy


Stern, Michael
Yeo, Tim


Stevens, Lewis (Nuneaton)
Young, Sir George (Acton)


Stewart, Andrew (Sherwood)



Stradling Thomas, J.
Tellers for the Ayes


Taylor, John (Solihull)
Mr. Tony Durant and


Terlezki, Stefan
Mr. Michael Neubert.

Question accordingly agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 10

NEWSPAPER ADVERTISEMENTS

Mr. Tony Blair: I beg to move amendment No. 2, in page 5, line 16, at beginning insert
'Save in so far as Schedule 5 to the Principal Act applies to the classified advertisements concerning births, marriages and deaths.'.
Failure to accept the amendment will mean that old-age pensioners and families who wish to record death will have to pay 15 per cent. in addition to the price of advertisements. Those who wish to announce or record the happy event of a marriage or birth will also have to pay an extra 15 per cent. As usual, the hardest hit will be those who are least able to pay.
The Government's policy has at least the merit of consistency. They are consistently against the interests of the poor and consistently in favour of the interests of the rich. The imposition of VAT on newspapers will raise a measly £50 million. We should contrast that with the thousands of millions of pounds that have been given to the top 5 per cent. of wage earners to see how inequitable the Government's proposal is.
It is as well to set the amendment in the context of the importance of advertising to our national, local and regional newspapers. In 1983, it was estimated that classified advertisements were worth £584 million to national newspapers and some £817 million to local and regional newspapers. That £817 million breaks down into £430 million for the daily local and regional newspapers, £207 million for weekly newspapers and £180 million for free newspapers. In the regions, 80 per cent. of newspaper revenue comes from advertisements. Figures show that in 1984 there was an increase of about 29 per cent. in advertising revenue for regional and local newspapers.
It is estimated that 20 per cent. of advertisements are private classified advertisements.
Although it is not possible to break down births, deaths and marriages as a percentage of private classified advertisements, they must represent a considerable proportion.
An independent report on regional and local newspapers has estimated that there will be a drop of 5 per cent. in advertising from private individuals and a loss of revenue of about £5 million as a result of the imposition of VAT.
Some 25 per cent. of the staff of regional and local newspapers work in the advertising section. The most dramatic effect of the imposition of VAT will be in ordinary individuals, because births, deaths and marriages are, by their nature, personal and individual.
The state death grant has been disgracefully low for some time, which means that the poorer individuals have to meet a great amount of the cost of funerals. This extra 15 per cent. will impose an additional burden on them. They will not be selling anything VAT-able. Not being businesses or corporations, they cannot offset the VAT against sales. The imposition of VAT on newspaper advertisements must be treated as a direct 15 per cent. tax that must be passed on by the newspaper.
7 pm
We have always had all-party agreement on VAT—which I hope still exists—that we should attempt to exempt or zero-rate items of necessity. That is why there is no VAT on food, despite the mistaken wish of some people. Certainly the Labour party intends to maintain that policy. The same considerations apply to advertisements for births, marriages and deaths. They may not be necessities in the strict sense, but people wish to place such advertisements because of circumstances that plainly make it equitable and fair that special treatment should be given to them.
It is mean and petty to visit this increase upon private individuals. We do not know Government estimates for the revenue from VAT on classified advertisements, but, when discussing the imposition of additional tax, we must balance the revenue with the consequences to the individuals concerned.
I hope that the Minister will deal specifically with the role of the EEC—especially the reasoned opinion of the Commission—in the Government's decision to introduce clause 10. In October 1984, the Commission gave a reasoned opinion that zero rating on certain United Kingdom items should cease. Of course, EEC countries can claim exemption for social reasons or benefit to the consumer. Although the Commission said that newspaper advertisements did not fit within those categories, and should cease to be zero rated, the Government disagreed at that time. If they felt then that they should be zero rated because of social reasons or benefit to the consumer, why have those same considerations not motivated the Government in deciding whether to accept the amendment?

Mr. Robert Sheldon: If the Government wish to counter any action by the Commission, that is the easiest thing in the world to do. The derogation remains, and we can contest any action as much as we wish. The problem arises because the Government agree with the Commission and are helping it to bring to an end some of the exemptions and zero ratings that is wants abolished.

Mr. Blair: My right hon. Friend is absolutely correct. He will no doubt be aware that the Treasury and Civil Service Select Committee, in its report, said that zero rating should remain. I agree that the Government are assisting the EEC in its work. Yet when the Commission first gave its reasoned opinion, because of pressure from, among others, their Back Benchers, the Government said that they would not bow to the EEC. That is an about-turn. It shows that the Government will not pay attention to the


report of the Select Committee and do not accept that for social reasons and benefit to the consumer zero rating should remain.

Mr. Austin Mitchell: Not only are the Government not taking any notice of the Select Committee, they are not taking any notice of their own officials who, in reference to the Commission's reasoned opinion, said:
We rely on the belief that our zero-rates are for clearly defined social reasons and for the benefit of the final consumer.

Mr. Blair: I am grateful to my hon. Friend, who confirms my point.
When the Commission first gave its reasoned opinion, the Government were keen to allay the fears of their Back Benchers and not to appear to bow to EC pressure. They were keen to say that the Commission had it wrong and that there were social reasons and benefit to the consumer why zero rating should remain. Therefore, what possible justification can there be for the Government to reverse their position? Either they have changed their mind and no longer accept that there are social reasons or benefit to the consumer, or they believe that, even though there are such reasons, they intend that zero rating should cease.
It is difficult to understand why, when these matters were first published in 1977, there was no objection from the Commission. I understand that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was concerned with those matters at that time. The Minister must tell the House the extent of EC pressure on the Government. Do they now believe that there are no longer social reasons or benefit to the consumer, or do they believe that there are still those reasons but they will impose the tax anyway?
The Finance Bill in many ways has crimes of omission in terms of what it should be doing for British industry and the British people which are much greater than its crimes of commission. It is a nothing Budget on the broad scale, but at this level it could have a serious effect on private individuals, many of whom are least able to withstand the economic pressures of our time.
Given the small revenue, the serious effect on the newspaper industry and on consumers, the social reasons why newspapers should remain zero rated, the Government's attitude and the attitude of their officials before the Select Committee, I submit that very good justification must be given by the Minister if he asks the House not to accept the amendment. I wait with interest to hear his reasons.

Mr. William O'Brien: I support the amendment because the imposition of VAT on advertising will hit many organisations. Charitable organisations will be greatly affected because they must advise people of their activities, and advertising in newspapers is frequently the means that they use. When, for example, a charity runs a street collection, it must advertise the result of the event. Imposing VAT on newspaper advertising is bound to place an additional cost on charities.
I received a letter dated 22 April on the subject. It said:
The Government does, of course, recognise the immensely valuable role which charities play in this country.
If the Government take that view, they should help such organisations, not place further financial burdens on them. The letter went on:
The relief would cost many tens of millions of pounds, which would have to be made good from elsewhere.

That referred to relieving charities from this imposition of VAT. If the Government are sincere in wishing to help such organisations———

The Temporary Chairman (Mr. David Crouch): Order. The amendment deals with applying VAT to certain categories of advertisements concerning births, marriages and deaths. We shall come later to the question of the application of VAT to charities.

Mr. O'Brien: I appreciate that, Mr. Crouch. I quoted from the letter—which was sent to me by the Minister—to show that VAT on newspaper advertising will hit many people in addition to those who wish to notify their families and friends of births, marriages and deaths. The imposition of VAT on small advertisements will place an additional financial burden on those who live in urban and rural areas. I trust that the Minister will comment on that aspect as well as on the more general points made by my hon. Friend the Member for Sedgefield (Mr. Blair).

Mr. Randall: I, too, support the amendment. I will, during my remarks, use the expression "classified advertisements" to represent small advertisements relating to births, marriages and deaths.
If adopted, the amendment would save the newspaper industry millions of pounds. We are discussing what is essentially a tax on the ordinary person. As my hon. Friend the Member for Sedgefield (Mr. Blair) pointed out, it was suggested in the pre-Budget briefing by Price Waterhouse and Company that the loss of revenue to newspapers as a result of the imposition of VAT on classified advertisements would be about £5 million a year, and that must have a great effect on local and regional newspapers.
It would greatly harm those who are establishing small businesses. In Hull, which, as I have mentioned previously, is an area of entrepreneurs, we are proud of the number of new businesses that are being established. In many instances, new companies are not initially registered for VAT. In any event, when they are first established, they must advertise considerably.
Although the amendment is concerned with advertisements relating to births, marriages and deaths, it is valid to refer to other small advertisements, especially as the Government claim to wish to encourage small businesses. Those establishing small firms will be badly affected by this VAT change.
What effect will this form of VAT have on the newspaper industry? Many newspapers are today embarking on the introduction of expensive high tech equipment. The reduction in profits that will result from this imposition of VAT is bound to have an adverse effect on that form of investment.
This loss of revenue through VAT being imposed on classified advertisements could result in cuts being made in editorial space and, indeed, in the size of newspapers. My principal worry is the effect that it will have on regional papers, particularly those that run on tight margins.
Before coming to speak to the amendment I telephoned the editor of my local paper, the Hull Daily Mail, which is a good newspaper of which I am proud. I am happy to say that it publishes everything that I provide.
The Hull Daily Mail has a circulation of about 115,000 copies a day. It is a daily evening paper, and part of the


Northcliffe group, which I believe includes 13 newspapers and many periodicals. The editor of the paper intends, if the provision becomes law, to pass the increase on to the customer, initially at any rate, although the newspaper is fairly profitable. The editor deals with these forms of advertising from day to day, and he intends to pass on the increase. The ordinary person will have to carry the can. The Government are imposing yet another level of taxation.
The papers most affected by this tax will be the small weeklies and the free papers. The editor of the Hull Daily Mail said that the paid-for papers were being discriminated against because they carried a high proportion of private advertising whereas a number of the free papers tended to deal with commercial advertising. I hope that the Minister will take that into account.
It is important to realise that there has been a phenomenal growth in free papers. I believe that about 700 papers are now produced, employing about 14,000 people full time and about 96,000 part time. The industry is growing rapidly. I hope that the introduction of VAT on advertising will not hamper that growth and destroy the employment opportunities that it provides. I am sure that other hon. Members, like me, find that a new free paper seems to be pushed through their letter boxes every week.
The example that I have quoted suggests that the 15 per cent. VAT is unlikely to be absorbed. Certainly the less profitable papers will not be able to absorb it. They will pass it on.
What about the customers themselves—the people who place the advertisements? There are different categories of classified advertisements, but the area that arouses the strongest feeling is that of births, deaths and marriages. The people who wish to place such advertisements may be on low incomes for whom an extra 15 per cent. will be a serious matter.
A significant number of people live on low incomes. The programme "Breadline Britain" suggested that 7 million or 8 million people are living in poverty. Such people often wish to advertise births, marriages and deaths.
I found out in discussion with the editor of the Hull Daily Mail that there is a tradition in Hull of using classified advertisements when a local personality dies. On the day following the death, there is a queue in the department that deals with classified advertisements to put in column inches about the personality concerned. That is a great tradition in west Hull, and the introduction of VAT on this form of advertising will spoil it.
In Hull, the older people like to commemorate silver and golden weddings, for instance. They like events to be recorded for posterity in the newspaper. This form of tax will end that tradition.
For all those reasons, I support the amendment.

Mr. Austin Mitchell: What amendment No. 2 seeks to prevent is a tax on grief and joy, and also a tax on announcements of marriage—an event that arouses emotions somewhere between the two. Effectively it is a tax on feelings, and, as my hon. Friend the Member for Kingston upon Hull, West (Mr. Randall) pointed out in his moving speech, a tax on the expression of those feelings. It would tax the commemoration of the death of a loved one who has passed on—a husband, wife or member of the family. Some people like to commemorate such events every year, others at five-yearly intervals, in the "In

Memoriam" columns. My hon. Friend's emphasis of that point suggested that he might be composing his own epic poem—"Lines on the failure to be reselected to Kingston upon Hull, West". There are some joys, confined to these Benches, that the Government would certainly be willing to tax.
The tax will not raise a large sum of money. It will tax real feelings. It is unreasonable and unnecessary.
We seek, through amendment No. 2, to reduce the scope of the tax, but we must consider the Government's general proposition. It would be reasonable on two grounds to oppose the tax altogether. It is a concession to European pressure that should never have been made, because it invalidates the Government's proclaimed opposition to wider aspects of that pressure. The Government said that they would resist that pressure, but they are now making a concession, in the form of this extension of VAT to advertising, that will be absolutely irreversible and will weaken the defence of zero rating in general.
The tax is harmful to charities—they are the subject of a later amendment—and to consumers. It is especially harmful, too, to an essential element of local democracy and society and of our way of life—the local newspapers. Local newspapers have many faults. In politics and in their general attitudes, they are too conservative. They have been made slothful by monopoly. However, they are an essential part of local life and democracy and they are in a difficult financial situation. They face fierce competition from the multiplicity of media, especially the local free sheets. A tax on their advertising will make their situation worse.
The erosion of our zero-rating system is unnecessary. The system works well and has been tried and tested. It has been supported by Governments of both parties over the years. It was introduced by the Conservative Government who negotiated our entry into the Common Market. They were particularly proud of the zero-rating system and the social purposes that it served. That view was backed by the succeeding Labour Government.
7.30 pm
The European Commission does not like the zero-rating system. It would rather people saw what they were paying for, and paid a tax directly to the EEC. The Commission thinks that VAT should be seen as such a tax. I doubt whether that will enhance the popularity of the Common Market.
The Commission likes harmonisation for harmonisation's sake, and advertisements in newspapers are taxed in every other EEC country except Greece. The tax is 14 per cent. in Germany, 19 per cent. in Belgium, and 22 per cent. in Denmark. The Commission would like to see that tax system extended to this country I do not understand why the Commission takes that view. Taxing advertisements would not enhance the working of the internal market, and classified advertisements of births, marriages and deaths are not an exportable commodity.
It could not be said that our system gives advantage no a competitor—although if birth announcements are not taxed that might be an incentive to have children! I am not sure about the logic of the Commission's position. Does it want a 15 per cent. tax on birth announcements to keep down the British birth rate and make us a less effective


competitor? In terms of the internal market and customs union, there is no reason why advertisements should be taxed.
The concession maintained by the amendment is obviously for the benefit of the final consumer, which the Commission says is a legitimate reason for zero rating. Of course, if the final consumer is the subject of a death announcement, the concession benefits his family.
More important, our concession is legal. All Governments have maintained and defended full control of our internal tax regime. After the 1975 renegotiation, the document put to the British people by the Labour Government emphasised that we had maintained full control of our internal tax regime and that there would be no pressure and no need for us to reduce the scope of zero rating. That scope was never questioned in the negotiations that led up to the sixth directive.
As my hon. Friend the Member for Sedgefield (Mr. Blair) stressed, the Government would not have accepted the sixth directive had questions been raised about the zero rating of any of the items mentioned in the so-called reasoned opinion of the Commission. We accepted the directive on the basis that it sanctified, maintained and sustained our system of zero rating. But the Government are selling that down the river.
The sixth directive allows zero rating for a transitional period for clearly defined social reasons. In this case, the valid social reasons are to keep in existence a healthy, financially viable local press, and the benefit of the final consumer, which, presumably, is covered by births, marriages and deaths advertisements. The transitional period continues until the Commission decides unanimously to end it. So why are we rushing along in this ill-considered fashion?
Illogically, and with only murmured warnings, the Commission came out in October 1984, after a long delay, with a reasoned opinion of our zero rates on live animals, sewerage services and water supply for business, newspaper advertisements and news services, protective boots, clothing for industrial use and other items.
The Select Committee on the Treasury and Civil Service felt that the opinion was prompted by the Commission's legalistic obsession with harmonisation. The Government opposed the Commission views and were right to do so. Treasury officials told the Select Committee—they were speaking generally, but newspaper advertisements are part of the generality—that the Commission's interest in harmonisation was
greater than the circumstances of the UK really require".
The officials pointed out that the Commission's action was understandable, but they regarded it as "legalistic". They were "surprised" by the objections made to zero rating.
The Select Committee argued:
VAT is a tax on consumers and…any reduction in the amount of VAT payable must be of direct benefit to the consumer…Registered traders net off their input VAT before remitting the balance to the exchequer, so that the result of zero rating is always to benefit the consumer, whether directly or indirectly.
It is curious that the Government, having expressed their opposition to the reasoned opinion and defended zero rating, should undercut their arguments, abandon their case and close their options by this clause. Once imposed, the VAT cannot be taken off. That would be contrary to

article 28(2) of the sixth directive because abolition and reintroduction do not amount to the maintenance of zero rating, which is sanctioned by the directive.
Why has one aspect of the reasoned opinion been singled out? What is the logic of the Government's position? What is the point of all this? The exemption served a valuable social purpose because it helped to maintain the viability of our press, particularly the local press.
It is worth emphasising that newspapers in other countries have benefits that our newspapers do not enjoy. Zero rating of advertisements was a partial benefit for our newspapers, but was no substitute for the substantial benefits received by newspapers in other EEC countries. Now even that partial benefit is being knocked away by the Government.
In France and Belgium, newspapers enjoy tax concessions. They enjoy subsidies in Belgium, France, Italy, Luxembourg, and most famously—though outside the EEC—in Sweden, where subsidies can be provided to support a competing local press in localities where a monopoly would otherwise result. Newspapers enjoy cheap loans in Denmark and postal concessions in all countries of the EEC. They enjoy telecommunications concessions in Belgium, France and Ireland, and rail concessions in Belgium, France, and Italy. The concession which has been swept away by the Government was a small substitute to help the press to maintain its financial viability.
The tax revenues arising from the change are small, £52 million in a full year, according to the Newspaper Society, and £50 million according to the Treasury. This loss to newspapers comes at a time when local newspapers particularly are in a difficult competitive situation. Competition is particularly intense from the free sheets, and such competition might drive other established local papers in the free sheet direction. Advertising is crucial because 80 per cent. of the revenue of local newspapers comes from advertising and only 20 per cent. from sales.
An estimate is given in the report of the Select Committee on the Treasury and Civil Service of the contribution of the different sections of advertising which have been taxed under the clause. Classified advertising for local and regional newspaper produced £464 million in revenue for those newspapers in 1983, of which recruitment accounted for £88 million, property £108 million, motors £110 million, and other categories £157 million, with which we are concerned in the amendment. Therefore, advertising is crucial to local newspapers, yet under the clause it is being taxed. It is estimated that there will be a drop in volume of advertising of about 5 per cent. as a result.
The category which we seek to defend in the amendment is the most unacceptable one to tax because it is a tax on feelings, and its consequences to newspapers are directly harmful. Therefore, we should support the amendment so that the feelings and emotions of our constituents may be expressed tax free, we should support the local press, which is in a difficult financial situation, and we should oppose the Government's concession to the EEC, which undermines the validity of the Government's opposition when they come to defend the rest of our zero-rating system.

Mr. Fisher: I am grateful to my right hon. and hon. Friends for having tabled the amendment, which recognises, in a way that the Government have been unable to recognise, the effect that this short clause will have on individuals.
I suspect that the Government did not really think through what they were doing. They where so keen to extend the range of indirect taxation by extending VAT, and they were so put off and perturbed by the active campaign on behalf of books, publishing and the cover price of newspapers, that they were distracted by political pressures. Even they did not have the nerve, correctly. to put VAT on children's shoes, because they recognised the emotive nature of so doing.
No doubt the Government felt that this extension of VAT was an easy option. Because it affects small advertisements and announcements of births, deaths and marriages, involving small sums, no doubt they told themselves that no one would object, that people had to put in such advertisments anyway, and therefore that they would be able to get away with it. I suspect that Minister's, if they had thought at all along those lines, did not really recognise what the impact on people would be.
I do not know whether the Minister's local paper has a births, deaths and marriages column. I am sure that it does, because these columns appear in every newspaper. I do not know whether the Minister's local paper has an in memoriam column, or whether this is another example of the north-south divide so that it is more common in the midlands and in the north of the country. In Stoke-on-Trent, it is an important element of our local paper.
On Tuesday last, 30 April, which was the last day before the tax come into effect, our local paper in Stoke-on-Trent, the Evening Sentinel, reported eight births, four comings of age, 49 deaths and 66 in memoriams, which is not a particularly large figure. At weekends there are probably more than 100 in memoriam advertisements. The Minister, just for a second, might listen to one of them and recognise who he is taxing and why. It says:
78 today. Another birthday we cannot share,
my birthday gift must be a prayer. 
The years we spent together …are never really gone, 
they leave behind special memories for looking back upon. 
You suffered much in silence, your spirit did not bend, 
you fought for life with courage, until the very end. 
Each leaf and flower may wither, each evening the sun may set, 
but those who are thinking of you today are …those who do not forget.
God bless—your loving wife".
Lower down in the same column, the Evening Sentinel published a small advertisement of its own:
VAT ON ADVERTISING. Government Regulations introduced in the recent Budget mean that VAT at the current rate of 15 per cent. must be added to all advertisements published from May 1st, 1985".
That is the sort of advertisement that the Government are taxing. The Minister cannot be proud of or pleased with that. Did he and the Government, in introducing this provision, intend that a woman like that who wishes to commemorate the passing of her husband and what he meant to her should have to pay 15 per cent. tax on registering her love and her grief at the passing of her

husband? I cannot believe that the Government or the Minister intend that. The Minister really ought to accept the amendment.

Mr. Hayhoe: The amendment seeks to continue zero rating for classified advertisements in newspapers and magazines concerning births, marriages and deaths. Before I respond to the detail of the amendment, it may be sensible for me to say a word about the general effect of the clause and, indeed, to respond to the invitation extended to me by the hon. Member for Sedgefield (Mr. Blair).
The reason for the change that animated my right hon. Friend the Chancellor was that it removes an anomaly. Advertisements in all other media are already taxed—television, radio, hoardings, billboards, leaflets and promotional material. Only advertisements in newspapers and magazines were not taxed. In fact, advertisement in books were taxed—not that they occur all that frequently.

Mr. Martin J. O'Neill: What similarity is there between the substance of classified advertising and the kind of advertising that takes place on television and on the radio? I do not know whether the Minister listens to commercial radio, but there is not the kind of classified advertising there to which my hon. Friends have referred.

Mr. Hayhoe: But I have listened to the debate and to what the hon. Member for Sedgefield said when he asked what animated the Government to bring forward the clause. The hon. Gentleman did that as a background to dealing with the amendment which refers to classified advertising. I shall come to that in a moment.
As to the reasons for the tax, first, it removes an anomaly. It is one thing to relieve newspapers and magazines from VAT, which had been forecast before the election, but quite another to extend that same relief to those who advertise in them. Because the Chancellor decided not to extend VAT to the cover price of magazines and newspapers but believed that it was right to make all advertisements taxable, he took this step. As has been acknowledged, it provides some useful revenue, and it is a further step in the direction of a shift in the burden of taxation from earnings to expenditure.
I confirm that the increase in revenue will be £30 million in 1985–86 and £50 million in a full year. Those figures take account of the fact that net revenue will accrue only from those traders and private individuals unable to reclaim the tax. It does not affect the VAT position in relation to the cover price of books and magazines.

Mr. Campbell-Savours: Has the Minister not learnt anything from last year's proceedings? The imposition of VAT on building improvements was regarded as a monstrous bungle by his Department and substnatial unemployment was forecast as a result. The imposition of VAT on fish and chips also led to forecasts from HOTAG of massive redundancies, which have indeed taken place. Has the Minister learnt nothing from those mistakes? Does he not think that the case put by people now forecasting unemployment in the newspaper industry should be heard? In the light of his two previous bungles, should he not take those views into account, especially in view of the employment implications?

Mr. Hayhoe: I do not know why the hon. Gentleman intervened to make those observations, which he could


have made in the general debate. I was responding to the invitation to explain the reasons for the tax. I appreciate that there are differing views in the Committee. That is partly why we debate these matters. If the Opposition did not disagree with the Government on this, they would presumably not have chosen to debate it.
A great deal has been said about the EEC, first by the hon. Member for Sedgefield, when he opened the debate, and later by the hon. Member for Great Grimsby (Mr. Mitchell) who referred several times to the Select Committee on the Treasury and Civil Service and to the wider European Community considerations. I confirm that the EEC challenged our zero rating of newspaper advertising and news services as being contrary to the sixth directive. Incidentally, the reasoned opinion did not challenge the zero rating of books, newspapers and magazines; it concentrated on advertisements and news services. The British Government rejected the Commission's reasoned opinion and that position is fully maintained in respect of all the items challenged by the Commission.
Paragraph 46 of the Select Committee report sets out the position extremely fairly. It states:
The argument that the British Government is its own master in matters of taxation also allows that the Chancellor may wish to reduce the extent of VAT zero rating"—
in other words, to extend the VAT base—
in order to pursue his declared aims of widening the tax base and shifting the weight of taxation from direct to indirect taxes. This decision is his prerogative"—
and, of course, Parliament's—
and is a political one which is not central to this report.
The Select Committee continued, endorsed by the hon. Member for Great Grimsby and others, that the change to extend zero rating,
if it is made, would be solely for domestic reasons. The decision is a political one on which we make no judgment. It has not been part of our inquiry. A British Chancellor can make his own decisions for his own reasons.

Mr. Blair: As I anticipated, the Minister has denied that the EEC had anything to do with the decision. The basis of the Government's rejection of the Commission's reasoned opinion, however, was that there were social reasons and that benefits to the consumer were involved. Do the Government still take that view? If so, what possible explanation is there for the imposition of the tax?

Mr. Hayhoe: I have just given the explanation. My right hon. Friend the Chancellor thought it desirable. But the decision in no way undercuts our position in relation to the EEC, and the Opposition do a disservice to our national interest by suggesting otherwise. The explanation given by the Select Committee is accurate, because the Select Committee understood that these are matters for the British Government, the British Chancellor and the British Parliament to decide. If Parliament and the Government so decide, it is not a matter for the Community. The decision can be made quite separately without in any way undercutting or weakening our position with regard to the Community.

Mr. Fisher: My reading of the Select Committee report is rather different. The report rightly emphasises that if the Government go ahead with this, it will be the Chancellor's own political choice. The Minister has confirmed that both in his reference to the report and in

his gestures of assent. He is saying that the Chancellor's political choice is to tax classified advertising in the same way as all other forms of advertising and, of his own free will and volition, to impose this tax on the grieving and the recently bereaved. The amendment deals specifically with that form of advertising. Is it really the Chancellor's personal political wish to tax those people? Will the Minister also tell us how much will be raised from the tax on classified advertising? In other words, what price has the Chancellor put on taxing these people?

Mr. Hayhoe: Perhaps the hon. Gentleman will contain himself. He knows me well enough to know that I shall deal with the amendment and respond to what has been said. He is wasting the Committee's time by intervening in that way. I was responding to the invitation from the Opposition Front Bench to explain the background to the measure and the European Community aspect, to which the hon. Member for Great Grimsby devoted a large part of his contribution, but the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) chose to jump up in a fury while I was doing so. I shall come to his points in due course, although what I have to say may not convince or appeal to him. I know from last year's debates what a Herculean task that would be. Nevertheless, I shall explain the Government's view.
I wish to emphasise an important point that the hon. Member for Sedgefield picked up once again. I assure the Committee that the change has been made for reasons of domestic taxation policy.

Mr. Fisher: Shame!

Mr. Hayhoe: This is a perfectly proper subject for debate and disagreement, but I hope that no suggestion will be made which will weaken the British Government's position in relation to other challenges from the European Commission. On other zero-rated items we may be challenged in the European Court. We shall fight our corner on behalf of the British interest as we see it, and I hope that nothing that is said today will seek to undercut our position in that respect.

Mr. Robert Sheldon: Does the hon. Gentleman foresee any difficulty from the Commission if a future Government wished to reverse the present decision?

Mr. Hayhoe: My next note is to confirm what the hon. Member for Great Grimsby said—that departing from zero rating was a one-way journey and irreversible. I acknowledge that. That is known widely, and the Select Committee refers to it in its report. If the Committee endorses the Chancellor's decision, the decision cannot be reversed at a future stage within the rules of the Community as they now exist.
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I shall speak fairly generally about the different classes of advertisers who will be affected. Registered traders who deal in taxable goods and services will be able to reclaim the tax under the normal mechanism. Traders in the exempt sector, such as finance, insurance, education and health, will either be unable to reclaim any tax or have the tax recovery restricted to the extent to which they make taxable supplies.
The hon. Member for Kingston upon Hull, West (Mr. Randall) referred to small traders. Small traders who are not registered for VAT—their annual turnover would have to be below £19,500—would not be able to


reclaim the VAT and, therefore, VAT would stick on them. It would also stick on private individuals who would also be unable to reclaim the tax.
The hon. Member for Normanton (Mr. O'Brien) mentioned charities, but I shall not deal with that point now because there is an amendment specifically about that, which we shall discuss later.
Obviously, the impact on the newspaper and magazine industry will vary for each publication, depending on the balance of its income between cover price and advertising, and on the extent of the advertising that it receives from the exempt sector—mainly financial—small unregistered traders, and private individuals unable to reclaim the tax. I acknowledge immediately that the burden will be greatest on the regional and local press, which depend most heavily on advertising revenue, and perhaps on that proportion of advertising revenue where the charge is not reclaimable and where it will stick. That applies particularly to free newspapers which depend entirely on advertising revenue, although the rates that they charge are generally lower than those of their competitors, where there is a cover price.
The quality national newspapers will be harder hit than the tabloids because of their greater dependence on advertising revenue and because they carry more classified and financial advertisements. Other publications which depend on a high volume of classified advertisements and those with a high number of financial advertisements may suffer a higher proportional loss of revenue.
No detailed study has been made of the effects of the tax on advertising alone. The study completed by the trade associations considered the combined effect of a tax on both advertisements and cover price. The best estimate by Price Waterhouse was a 3 per cent. volume reduction for regional newspapers. That was, however, an average figure, and obviously there will be a considerable range. The effect will depend on the extent to which advertisement rates fully reflect the tax and the extent to which advertisers who are unable to reclaim the tax are prepared to increase their expenditure. Although the effect may be significant for some specialist publications, the reduction is expected to be small overall because VAT is likely to stick on less than about one fifth of total press advertising.
I shall now turn to the particular points of the amendment.

Mr. Campbell-Savours: The Minister said that in some cases the figure would be more than 3 per cent. Will he confirm that that could lead to job losses?

Mr. Hayhoe: From the information available at present, the chances of a loss of jobs are small.

Mr. Campbell-Savours: That is what was said about the impact of VAT on fish and chip shops.

Mr. Hayhoe: Many of the representations that we have received have argued that the change will reduce employment because publications will close or expansion will be curtailed. I think that that is the sort of point that the hon. Gentleman has in mind. It is difficult to isolate the effect of this tax change from the many other factors that influence employment prospects. Our best estimate of the net effect of the measure on employment is that it should be marginal across the whole range of the press and magazines.
I shall now deal with our debate about classified advertisements for births, marriages and deaths. It is hard

to quantify the costs. The best estimate of the loss of revenue is between £5 million and £10 million in a full year, if the amendment is agreed to. Obviously, that is especially relevant to private advertisers, as they place most classified advertisements. That means that little of the tax will be recoverable from such advertisements. The simple consequence is a tax on final consumer expenditure. The same is true of the other private classified advertisements—for example, the sale of household goods, motor vehicles, houses and so on. Hon. Gentlemen have already given the figures for the breakdown of overall classified expenditure.
The hon. Member for Stoke-on-Trent, Central pointed out that announcements of births, marriages and deaths are of special social significance and should be singled out for continued relief. I am not persuaded by his arguments. The arguments are most forceful for death announcements. Obviously, grieving relatives wish to let others know of a death as quickly and efficiently as possible. Announcements about births and marriages are a form of discretionary spending, and there is insufficient justification for continuing VAT relief on them, as VAT is to be imposed on press advertisements generally. If VAT relief were continued on them, there would soon be pressure to extend that relief to other commemorative or congratulatory messages, such as engagements and wedding anniversaries. The hon. Member for Kingston upon Hull, West mentioned the importance of classified advertisements for golden weddings. Pressure may even be extended to the Valentine classified advertisements, which have become a growth industry in recent years. It is difficult to see where relief would end if we took that avenue.
Although I accept the case is strong for death announcements, it would be extremely difficult to devise and administer a relief for that category of advertising alone. It would place an extra adminitrative burden on newspapers, because they would have to make special accounting arrangements to identify and deal with the one or two types of advertisements which would continue to be zero rated.
The hon. Member for Sedgefield spoke about the impact on pensioners. I recognise his anxiety, that poorer old-age pensioners will have particular difficulty in meeting the additional cost of VAT on death notices. Happily, such an event occurs fairly infrequently in most families. The additional VAT charge on such advertisements in regional or local newspapers throughout the country will probably be about 50p or £1 for the whole advertisement. It is to be hoped that such an advertisement would be only rarely inserted by a particular family.
It would be very difficult to allow a concession such as that requested in the amendment. If such a concession were to be made, pressures would immediately build up to extend the relief to other worthy causes. I have little doubt that the inventive minds of hon. Members in all parts of the Committee would quickly bring forward suitable candidates for further concessions.
VAT is a broadly based tax on consumer expenditure. Once it has been extended to cover a formerly zero-rated area, I think it would be wrong to grant special relief other than in the most exceptional circumstances, and I do not regard the amendment as covering such wholly exceptional circumstances. Therefore, I hope that the Committee will not accept it.

Question put, That the amendment be made:—

The Committee divided: Ayes 111, Noes 202.

Division No. 198]
[6.43 pm


AYES


Alexander, Richard
Hawkins, Sir Paul (SW N'folk)


Alison, Rt Hon Michael
Hayes, J.


Ancram, Michael
Hayhoe, Barney


Arnold, Tom
Hayward, Robert


Ashby, David
Heddle, John


Aspinwall, Jack
Henderson, Barry


Atkins, Rt Hon Sir H.
Hickmet, Richard


Atkins, Robert (South Ribble)
Higgins, Rt Hon Terence L.


Baker, Nicholas (N Dorset)
Hind, Kenneth


Banks, Robert (Harrogate)
Hirst, Michael


Batiste, Spencer
Holt, Richard


Beaumont-Dark, Anthony
Howarth, Alan (Stratf'd-on-A)


Benyon, William
Howarth, Gerald (Cannock)


Best, Keith
Howell, Ralph (N Norfolk)


Blackburn, John
Hunt, David (Wirral)


Body, Richard
Irving, Charles


Boscawen, Hon Robert
Jackson, Robert


Bottomley, Peter
Jessel, Toby


Bottomley, Mrs Virginia
Johnson Smith, Sir Geoffrey


Bowden, A. (Brighton K'to'n)
Jones, Gwilym (Cardiff N)


Bowden, Gerald (Dulwich)
Jones, Robert (W Herts)


Braine, Rt Hon Sir Bernard
King, Roger (B'ham N'field)


Brandon-Bravo, Martin
Knight, Mrs Jill (Edgbaston)


Bright, Graham
Lamont, Norman


Brinton, Tim
Lang, Ian


Brown, M. (Brigg &amp; Cl'thpes)
Lawrence, Ivan


Browne, John
Lee, John (Pendle)


Bruinvels, Peter
Leigh, Edward (Gainsbor'gh)


Bryan, Sir Paul
Lennox-Boyd, Hon Mark


Buck, Sir Antony
Lester, Jim


Budgen, Nick
Lewis, Sir Kenneth (Stamf'd)


Bulmer, Esmond
Lilley, Peter


Burt, Alistair
Lloyd, Ian (Havant)


Carlisle, John (N Luton)
Lloyd, Peter, (Fareham)


Carlisle, Kenneth (Lincoln)
Lord, Michael


Carlisle, Rt Hon M. (W'ton S)
Luce, Richard


Carttiss, Michael
Lyell, Nicholas


Cash, William
McCurley, Mrs Anna


Chalker, Mrs Lynda
Macfarlane, Neil


Chope, Christopher
Maclean, David John


Clark, Dr Michael (Rochford)
McNair-Wilson, P. (New F'st)


Clarke, Rt Hon K. (Rushcliffe)
Major, John


Cockeram, Eric
Malins, Humfrey


Coombs, Simon
Malone, Gerald


Cope, John
Marlow, Antony


Cormack, Patrick
Mates, Michael


Couchman, James
Mather, Carol


Critchley, Julian
Mawhinney, Dr Brian


Currie, Mrs Edwina
May hew, Sir Patrick


Dickens, Geoffrey
Merchant, Piers


Dorrell, Stephen
Miller, Hal (B'grove)


Douglas-Hamilton, Lord J.
Mills, lain (Meriden)


Dover, Den
Mills, Sir Peter (West Devon)


Dunn, Robert
Mitchell, David (NW Hants)


Dykes, Hugh
Montgomery, Sir Fergus


Evennett, David
Moore, John


Eyre, Sir Reginald
Morris, M. (N'hampton, S)


Fallon, Michael
Morrison, Hon C. (Devizes)


Favell, Anthony
Moynihan, Hon C.


Fletcher, Alexander
Nelson, Anthony


Forman, Nigel
Newton, Tony


Forth, Eric
Nicholls, Patrick


Fowler, Rt Hon Norman
Norris, Steven


Fox, Marcus
Oppenheim, Phillip


Gale, Roger
Oppenheim, Rt Hon Mrs S.


Galley, Roy
Osborn, Sir John


Garel-Jones, Tristan
Ottaway, Richard


Goodhart, Sir Philip
Page, Sir John (Harrow W)


Gower, Sir Raymond
Parkinson, Rt Hon Cecil


Greenway, Harry
Parris, Matthew


Griffiths, E. (B'y St Edm'ds)
Percival, Rt Hon Sir Ian


Grylls, Michael
Pollock, Alexander


Hamilton, Hon A. (Epsom)
Portillo, Michael


Hannam, John
Powell, William (Corby)


Hargreaves, Kenneth
Powley, John


Harris, David
Prentice, Rt Hon Reg


Harvey, Robert
Price, Sir David


Haselhurst, Alan
Pym, Rt Hon Francis





Raffan, Keith
Thomas, Rt Hon Peter


Raison, Rt Hon Timothy
Thompson, Donald (Calder V)


Rees, Rt Hon Peter (Dover)
Thompson, Patrick (N'ich N)


Rhodes James, Robert
Thorne, Neil (llford S)


Ridsdale, Sir Julian
Thornton, Malcolm


Rippon, Rt Hon Geoffrey
Thurnham, Peter


Roberts, Wyn (Conwy)
Townend, John (Bridlington)


Robinson, Mark (N'port W)
Tracey, Richard


Roe, Mrs Marion
Twinn, Dr Ian


Rowe, Andrew
van Straubenzee, Sir W.


Ryder, Richard
Viggers, Peter


Sackville, Hon Thomas
Waddington, David


Sayeed, Jonathan
Wakeham, Rt Hon John


Shaw, Giles (Pudsey)
Waller, Gary


Shaw, Sir Michael (Scarb')
Ward, John


Shelton, William (Streatham)
Wardle, C. (Bexhill)


Shepherd, Colin (Hereford)
Watson, John


Shepherd, Richard (Aldridge)
Watts, John


Silvester, Fred
Wells, Bowen (Hertford)


Sims, Roger
Wells, Sir John (Maidstone)


Skeet, T. H. H.
Wheeler, John


Smith, Tim (Beaconsfield)
Whitfield, John


Soames, Hon Nicholas
Whitney, Raymond


Speller, Tony
Wiggin, Jerry


Spencer, Derek
Winterton, Mrs Ann


Spicer, Michael (S Worcs)
Winterton, Nicholas


Stanbrook, Ivor
Wolfson, Mark


Steen, Anthony
Wood, Timothy


Stern, Michael
Yeo, Tim


Stevens, Lewis (Nuneaton)
Young, Sir George (Acton)


Stewart, Andrew (Sherwood)



Stradling Thomas, J.
Tellers for the Ayes


Taylor, John (Solihull)
Mr. Tony Durant and


Terlezki, Stefan
Mr. Michael Neubert.




NOES


Abse, Leo
Edwards, Bob (W'h'mpt'n SE)


Adams, Allen (Paisley N)
Evans, John (St. Helens N)


Archer, Rt Hon Peter
Fatchett, Derek


Ashton, Joe
Fields, T. (L'pool Broad Gn)


Atkinson, N. (Tottenham)
Fisher, Mark


Bagier, Gordon A. T.
Foster, Derek


Barnett, Guy
Foulkes, George


Benn, Tony
Freeson, Rt Hon Reginald


Bennett, A. (Dent'n &amp; Red'sh)
George, Bruce


Bermingham, Gerald
Gilbert, Rt Hon Dr John


Bidwell, Sydney
Godman, Dr Norman


Blair, Anthony
Gould, Bryan


Boyes, Roland
Gourlay, Harry


Bray, Dr Jeremy
Hamilton, James (M'well N)


Brown, Gordon (D'f'mline E)
Hamilton, W. W. (Central Fife)


Brown, Hugh D. (Provan)
Hardy, Peter


Brown, R. (N'c'tle-u-Tyne N)
Harrison, Rt Hon Walter


Buchan, Norman
Hogg, N. (C'nauld &amp; Kilsyth)


Caborn, Richard
Hughes, Robert (Aberdeen N)


Callaghan, Jim (Heyw'd &amp; M)
Hughes, Sean (Knowsley S)


Campbell-Savours, Dale
Janner, Hon Greville


Canavan, Dennis
Jones, Barry (Alyn &amp; Deeside)


Clark, Dr David (S Shields)
Kinnock, Rt Hon Neil


Clarke, Thomas
Lamond, James


Clay, Robert
Lewis, Ron (Carlisle)


Clwyd, Mrs Ann
Lewis, Terence (Worsley)


Cocks, Rt Hon M. (Bristol S.)
Lloyd, Tony (Stratford)


Concannon, Rt Hon J. D.
McDonald, Dr Oonagh


Cook, Frank (Stockton North)
McKay, Allen (Penistone)


Cook, Robin F. (Livingston)
MacKenzie, Rt Hon Gregor


Corbyn, Jeremy
McNamara, Kevin


Cowans, Harry
McWilliam, John


Craigen, J. M.
Madden, Max


Davis, Terry (B'ham, H'ge H'l)
Marek, Dr John


Deakins, Eric
Mason, Rt Hon Roy


Dewar, Donald
Maynard, Miss Joan


Dixon, Donald
Michie, William


Dormand, Jack
Mikardo, Ian


Douglas, Dick
Millan, Rt Hon Bruce


Dubs, Alfred
Mitchell, Austin (G't Grimsby)


Duffy, A. E. P.
Morris, Rt Hon J. (Aberavon)


Dunwoody, Hon Mrs G.
Oakes, Rt Hon Gordon


Eadie, Alex
O'Brien, William


Eastham, Ken
O'Neill, Martin






Orme, Rt Hon Stanley
Stott, Roger


Pike, Peter
Strang, Gavin


Powell, Raymond (Ogmore)
Thomas, Dr R. (Carmarthen)


Prescott, John
Thompson, J. (Wansbeck)


Randall, Stuart
Thorne, Stan (Preston)


Rees, Rt Hon M. (Leeds S)
Tinn, James


Richardson, Ms Jo
Wardell, Gareth (Gower)


Roberts, Ernest (Hackney N)
Wareing, Robert


Sheerman, Barry
Wigley, Dafydd


Sheldon, Rt Hon R.
Williams, Rt Hon A.


Shore, Rt Hon Peter
Wilson, Gordon


Short, Ms Clare (Ladywood)
Winnick, David


Short, Mrs R.(W'hampt'n NE)
Woodall, Alec


Skinner, Dennis



Snape, Peter
Tellers for the Noes:


Soley, Clive
Mr. Frank Haynes and


Spearing, Nigel
Mr. John Maxton.


Stewart, Rt Hon D. (W Isles)

Division No. 199]
[8.10 pm


AYES


Adams, Allen (Paisley N)
Hughes, Robert (Aberdeen N)


Atkinson, N. (Tottenham)
Hughes, Sean (Knowsley S)


Bagier, Gordon A. T.
Janner, Hon Greville


Barnett, Guy
Jones, Barry (Alyn &amp; Deeside)


Bennett, A. (Dent'n &amp; Red'sh)
Kilroy-Silk, Robert


Bermingham, Gerald
Lamond, James


Blair, Anthony
Lewis, Ron (Carlisle)


Boyes, Roland
Lewis, Terence (Worsley)


Bray, Dr Jeremy
Litherland, Robert


Brown, Gordon (D'f'mline E)
Lloyd, Tony (Stretford)


Brown, Hugh D. (Provan)
McDonald, Dr Oonagh


Brown, R. (N'c'tle-u-Tyne N)
McKelvey, William


Buchan, Norman
McNamara, Kevin


Caborn, Richard
McTaggart, Robert


Callaghan, Jim (Heyw'd &amp; M)
McWilliam, John


Campbell-Savours, Dale
Madden, Max


Canavan, Dennis
Marek, Dr John


Clark, Dr David (S Shields)
Mason, Rt Hon Roy


Clarke, Thomas
Maxton, John


Clay, Robert
Maynard, Miss Joan


Cocks, Rt Hon M. (Bristol S.)
Michie, William


Concannon, Rt Hon J. D.
Millan, Rt Hon Bruce


Cook, Frank (Stockton North)
Mitchell, Austin (G't Grimsby)


Cook, Robin F. (Livingston)
Morris, Rt Hon A. (W'shawe)


Corbett, Robin
Oakes, Rt Hon Gordon


Corbyn, Jeremy
O'Brien, William


Cowans, Harry
O'Neill, Martin


Craigen, J. M.
Orme, Rt Hon Stanley


Davis, Terry (B'ham, H'ge H'l)
Pike, Peter


Deakins, Eric
Powell, Rt Hon J. E. (S Down)


Dewar, Donald
Powell, Raymond (Ogmore)


Dixon, Donald
Prescott, John


Dormand, Jack
Randall, Stuart


Douglas, Dick
Redmond, M.


Dubs, Alfred
Rees, Rt Hon M. (Leeds S)


Duffy, A. E. P.
Richardson, Ms Jo


Dunwoody, Hon Mrs G.
Sheldon, Rt Hon R.


Eadie, Alex
Short, Ms Clare (Ladywood)


Eastham, Ken
Short, Mrs R.(W'hampt'n NE)


Edwards, Bob (W'h'mpt'n SE)
Skinner, Dennis


Evans, John (St. Helens N)
Soley, Clive


Fatchett, Derek
Spearing, Nigel


Field, Frank (Birkenhead)
Stewart, Rt Hon D. (W Isles)


Fields, T. (L'pool Broad Gn)
Stott, Roger


Fisher, Mark
Strang, Gavin


Foster, Derek
Thomas, Dr R. (Carmarthen)


Foulkes, George
Thorne, Stan (Preston)


Garrett, W. E.
Tinn, James


George, Bruce
Wardell, Gareth (Gower)


Gilbert, Rt Hon Dr John
Wigley, Dafydd


Golding, John
Wilson, Gordon


Gould, Bryan
Winnick, David


Gourlay, Harry
Woodall, Alec


Hamilton, James (M'well N)



Hardy, Peter
Tellers for the Ayes:


Harrison, Rt Hon Walter
Mr. Frank Haynes and


Hogg, N. (C'nauld &amp; Kilsyth)
Mr. Allen McKay.


Howells, Geraint





NOES


Adley, Robert
Best, Keith


Alexander, Richard
Bevan, David Gilroy


Ancram, Michael
Blackburn, John


Arnold, Tom
Body, Richard


Ashby, David
Boscawen, Hon Robert


Atkins, Robert (South Ribble)
Bottomley, Peter


Baker, Nicholas (N Dorset)
Bottomley, Mrs Virginia


Baldry, Tony
Bowden, A. (Brighton K'to'n)


Banks, Robert (Harrogate)
Bowden, Gerald (Dulwich)


Batiste, Spencer
Brandon-Bravo, Martin


Beaumont-Dark, Anthony
Bright, Graham


Bellingham, Henry
Brinton, Tim


Benyon, William
Brooke, Hon Peter





Brown, M. (Brigg &amp; Cl'thpes)
McQuarrie, Albert


Bruinvels, Peter
Major, John


Bryan, Sir Paul
Malins, Humfrey


Budgen, Nick
Malone, Gerald


Bulmer, Esmond
Maples, John


Burt, Alistair
Marland, Paul


Butcher, John
Marlow, Antony


Butterfill, John
Mates, Michael


Carlisle, Rt Hon M. (W'ton S)
Mather, Carol


Carttiss, Michael
Mayhew, Sir Patrick


Cash, William
Mellor, David


Chalker, Mrs Lynda
Merchant, Piers


Chope, Christopher
Meyer, Sir Anthony


Clark, Dr Michael (Rochford)
Mills, lain (Meriden)


Clarke, Rt Hon K. (Rushcliffe)
Mills, Sir Peter (West Devon)


Cockeram, Eric
Mitchell, David (NW Hants)


Coombs, Simon
Moate, Roger


Cope, John
Montgomery, Sir Fergus


Cormack, Patrick
Moore, John


Couchman, James
Morris, M. (N'hampton, S)


Cranborne, Viscount
Morrison, Hon C. (Devizes)


Critchley, Julian
Morrison, Hon P. (Chester)


Currie, Mrs Edwina
Moynihan, Hon C.


Dickens, Geoffrey
Nelson, Anthony


Dorrell, Stephen
Neubert, Michael


Douglas-Hamilton, Lord J.
Newton, Tony


Dover, Den
Nicholls, Patrick


Dunn, Robert
Osborn, Sir John


Durant, Tony
Ottaway, Richard


Dykes, Hugh
Page, Sir John (Harrow W)


Evennett, David
Page, Richard (Herts SW)


Eyre, Sir Reginald
Parkinson, Rt Hon Cecil


Fallon, Michael
Parris, Matthew


Farr, Sir John
Peacock, Mrs Elizabeth


Favell, Anthony
Pollock, Alexander


Fenner, Mrs Peggy
Portillo, Michael


Fletcher, Alexander
Powell, William (Corby)


Forman, Nigel
Powley, John


Forth, Eric
Prentice, Rt Hon Reg


Fowler, Rt Hon Norman
Price, Sir David


Gale, Roger
Proctor, K. Harvey


Galley, Roy
Raffan, Keith


Garel-Jones, Tristan
Rathbone, Tim


Gower, Sir Raymond
Rees, Rt Hon Peter (Dover)


Greenway, Harry
Rhodes James, Robert


Gregory, Conal
Ridsdale, Sir Julian


Hamilton, Hon A. (Epsom)
Roberts, Wyn (Conwy)


Hannam, John
Robinson, Mark (N'port W)


Hargreaves, Kenneth
Roe, Mrs Marion


Harvey, Robert
Rossi, Sir Hugh


Hawkins, Sir Paul (SW N'folk)
Rowe, Andrew


Hayes, J.
Sackville, Hon Thomas


Hayhoe, Barney
Sayeed, Jonathan


Heddle, John
Shaw, Giles (Pudsey)


Henderson, Barry
Shaw, Sir Michael (Scarb')


Hickmet, Richard
Shelton, William (Streatham)


Hind, Kenneth
Shepherd, Colin (Hereford)


Hogg, Hon Douglas (Gr'th'm)
Silvester, Fred


Howarth, Gerald (Cannock)
Sims, Roger


Howell, Ralph (N Norfolk)
Skeet, T. H. H.


Jessel, Toby
Smith, Tim (Beaconsfield)


Jones, Gwilym (Cardiff N)
Soames, Hon Nicholas


Jones, Robert (W Herts)
Speller, Tony


King, Roger (B'ham N'field)
Spencer, Derek


Lamont, Norman
Stanbrook, Ivor


Lang, Ian
Stern, Michael


Lawrence, Ivan
Stevens, Lewis (Nuneaton)


Lee, John (Pendle)
Stradling Thomas, J.


Leigh, Edward (Gainsbor'gh)
Taylor, John (Solihull)


Lennox-Boyd, Hon Mark
Terlezki, Stefan


Lester, Jim
Thomas, Rt Hon Peter


Lewis, Sir Kenneth (Stamf'd)
Thompson, Patrick (N'ich N)


Lilley, Peter
Thorne, Neil (Ilford S)


Lloyd, Ian (Havant)
Thurnham, Peter


Lord, Michael
Townend, John (Bridlington)


Luce, Richard
Tracey, Richard


McCurley, Mrs Anna
Trotter, Neville


MacGregor, John
Twinn, Dr Ian


Maclean, David John
van Straubenzee, Sir W.


McNair-Wilson, P. (New F'st)
Viggers, Peter






Waddington, David
Winterton, Mrs Ann


Wakeham, Rt Hon John
Winterton, Nicholas


Waller, Gary
Wolfson, Mark


Ward, John
Wood, Timothy


Wardle, C. (Bexhill)
Yeo, Tim


Watts, John
Young, Sir George (Acton)


Wheeler, John



Whitfield, John
Tellers for the Noes:


Whitney, Raymond
Mr. Peter Lloyd and


Wiggin, Jerry
Mr. Tim Sainsbury.

Question accordingly negatived.

Mr. Blair: I beg to move amendment No. 3, in clause 10, page 5, line 16, at beginning insert
'Save where advertisements concern employment.'.
It is fitting that we are debating the amendment on a day which has included employment questions. In answer to a question which I had tabled, the Secretary of State for Employment told the House that there were 3,273,000 unemployed claimants in April 1985. That is a staggering figure, but it is a gross understatement of the true level of unemployment. The real total is much closer to 4 million.
We argue about the policies that are best to reduce unemployment and about those that produce the present level of unemployment. However, it should be common ground that no obstacle should be placed in the way of further employment prospects. It is surprising and disappointing that the Government are not prepared to concede without hesitation an amendment that would exempt from VAT newspaper advertisements for employment. If a company advertises job prospects in a newspaper, whether it is a national, regional or local journal, it will pay VAT at 15 per cent. That is a true tax on jobs.
The position is even worse for smaller companies or firms which have only recently been formed and which are paying VAT because their annual turnover is less than £19,500. They will advertise jobs, pay VAT on the advertisements and will be unable to set that off against any VAT that they charge on sales. The VAT that they pay in addition to the price of the advertisement will go straight on to the costs of the firm and will reduce the money that is available for employment. The VAT that is charged on advertisements is a tax upon employment and will hinder greatly the prospects of those seeking jobs. It will discourage employers from advertising jobs widely.
Many people find jobs through their local newspapers. Those who are seeking work will go to the job centre and they will read their local newspapers. In any reasonable local newspaper there is usually a column of job advertisements. It is obvious that they are important so that those seeking work may learn where employment prospects lie. We should oppose any tax that prevents or hinders the individual's ability to seek work.
I hope that the Government will think again and will acknowledge that job advertisements should not be taxed. If the amendment is accepted, there is a much better chance that employers will be encouraged to advertise jobs and consequently a much better chance of individuals finding work through their local newspapers and other sources of job advertisements.

Mr. Hayhoe: The purpose of the amendment is to continue the zero rating of employment advertisements in newspapers and magazines. In effect, all recruitment advertisements would continue to be zero rated. The cost of the amendment would be less than £5 million. It would

be low because the vast bulk of recruitment advertising is placed by commercial concerns rather than private individuals. Most advertisers will be able to recover the VAT charged under the normal mechanism of the tax, as it can be claimed back as input tax.
Those affected adversely will be small traders—the hon. Member for Sedgefield (Mr. Blair) referred to them specifically—who are not registered for VAT. Included in this category will be those with a turnover of less than £19,500 and traders who deal in exempt or non-business supplies. The latter category is much more substantial than the others and includes, for example, Government Departments. However, there is a certain circularity about extra tax charges that are paid with one hand and collected with the other. I should make it clear that local authorities would not be affected because they do not come within clause 20. Some parts of the finance, insurance, health and education sectors will be affected as well as some charities. We shall be dealing with advertisements by charities when we reach amendments Nos. 4 and 5.
As the cost of recruitment advertisements will not increase for the majority of employers, there will be no reason for them to reduce their recruitment advertising on account of VAT. In areas where not all the VAT will be recoverable, it is possible that there will be some reduction in the amount of recruitment advertising which is placed. A few representations to that effect have been received by the Treasury from the financial sector. I expect the effect of such reductions to be pretty small. To the extent that a reduction occurs, it is likely to be in the frequency or size of advertisements. It is improbable that an employer wishing to recruit staff will not advertise because of the VAT charge. I strongly doubt whether the extension of VAT will have a noticeable effect on the level of employment.
The amendment suggests that there should be special relief for recruitment advertisements. The revenue cost of allowing the relief would be relatively small—under £5 million—but the case for it has not been made out fully. The effect on employment would be minimal and the effect on advertising would be small. That is probably common ground because the vast majority of recruitment advertisements will be placed by people with whom the VAT charge will not stick.
If relief were allowed, it would be difficult to refuse other worthy causes. Indeed, it would make something of a nonsense of the Division on amendment No. 2. Reliefs such as this would significantly complicate the administration of the tax and put an additional administrative burden on newspapers and magazines, as they would have to deal with some zero rated advertisements and some taxed ones. VAT is intended as a broad-based tax on consumer expenditure. Once it has been extended, it is wrong in principle to select items for continued special relief. I hope that the amendment will be withdrawn or, if not, that the Committee will reject it.

Amendment negatived.

Mr. Blair: I beg to move amendment No. 4, in page 5, line 16, at beginning insert
'Save in so far as Schedule 5 of the Principal Act concerns value-added-tax on advertisements by charities'.

The Temporary Chairman: With this it will be convenient to take amendment No. 5, in page 5, line 16, at beginning insert


'Save in so far as Schedule 5 of the Principal Act concerns value-added-tax on advertisements by registered charities'.

Mr. Blair: Amendment No. 4 has drawn support from a broad range of people. Perhaps the most strongly argued debate on the Bill will be about VAT on advertisements by charities. The amendment exempts charities from VAT on advertisements. I expect the Government will argue that to accept the amendment would be to accept an anomaly. They have argued that it is wrong to distinguish between different types of advertisement. There will be no anomaly if the amendment is accepted. Indeed, an anomaly will arise if it is not accepted.
The basis of charities' operations is that their income is not taxed. They raise their income primarily from donations. Therefore, clause 10 means that, although charities' income is not taxed, the primary means by which they raise that income—advertising—will be taxed. Their ability to raise money will be hampered and their costs will be increased. Moreover, charities have no VAT in respect of sales to set off against the tax that they pay on advertisements. I cannot believe that the Government want to hinder charities and to subject them to a tax that will greatly hamper their fund-raising activities. The change comes especially ill from a Government who maintain—the Prime Minister has said this often—that the more charities do, the better. They believe that more should be done privately to lessen the burden on the Exchequer.

Mr. Campbell-Savours: When the Prime Minister suggests that charities should not be zero rated, perhaps she regards them as revenue raisers on her behalf.

Mr. Blair: I take my hon. Friend's point. The Government regard charities as a substitute for state action. The whole House agrees that charities perform a useful function which should be encouraged. If, therefore, charitable income is so socially desirable that it is exempted from tax, so should be the conduit by which the money is raised.
Charities need advertising for donations, to exchange information about their services and for staff recruitment. There is a strong move afoot to exempt charities from VAT, and the Charities VAT Reform Group has been established for that purpose. The argument to exempt charities' advertisements from VAT can be made logically and without having to accept the case for general exemption. The reform group did a survey of the top 200 charities and received 110 replies which showed that they would have to pay an extra £1·2 million a year in VAT for advertising space. That sum will come directly from funds which would otherwise be used to do charitable work. Only the Exchequer will benefit. The Treasury estimates that there are between 70,000 and 100,000 charities in Britain, so the total burden will be considerably higher. It is therefore surprising that the Government have estimated that the cost will be only £1 million.
I hope that the Minister will deal with this matter. That figure of £1 million is hotly disputed by the charities. I shall be grateful if the Minister will say whether my information is right or wrong. It is that the Government's figure of £1 million is based on the Advertising Association's estimate of agency-placed advertising. In

other words, that £1 million represents the amount of agency-placed advertising by charities. However, much charitable advertising is not done through agency placing. Therefore, perhaps the Government's figures are based on that misunderstanding.
The charities feel particularly strongly about this matter, partly because of the way in which the Budget has been sold for charities. It has been said by Ministers and by the Chancellor himself that, overall, the Budget is helpful to charities. That view is not shared by charitable organisations to which I have spoken.
The Government say that they have helped charities in two ways. It is worth outlining them so that we can set in context what we are talking about in the amendment. First, the Government say that they have raised the limit on relief from higher rate tax from £5,000 to £10,000. They say that that will be of assistance to charities when they receive greater donations. The Exchequer estimates that the cost of that to the Exchequer will be £1 million. I hope, again, that the Minister will specifically say whether my information is right. It is that few covenants reach £5,000, never mind £10,000. Therefore, the notion that the £5,000 limit to relief from higher rate tax is a barrier to higher covenants is not borne out when one examines the amounts of covenants.

Mr. Campbell-Savours: Is it not also noticeable that there is a certain profile which one can identify in relation to those contributions, which is that certain charities attract higher contributions, while others attract none? Therefore, the help to which my hon. Friend has referred is specific in so far as it will go only to a few, and a great number of charities will not benefit in any way, but will just lose.

Mr. Blair: I am grateful to my hon. Friend. That is absolutely right.
I have looked into these covenants. For example, not a single covenant of £5,000 is received by the Muscular Dystrophy Group of Great Britain. The steering committee of the Charities VAT Reform Group receives about £543,000 in total covenanted income. That includes some major charities such as Dr. Barnardo's, Help the Aged, International Christian Relief, MENCAP, and so on. Therefore, the total covenanted income of many of the large charities is not that large. I should like to know whether the Minister accepts that few covenants reach £5,000 and where on earth he gets his £1 million from. The charities dispute it strongly.
The second piece of mitigation put forward by the Government as to why VAT on newspaper advertisements will not affect charities too adversely when compared with the other things that the Government are doing in the Budget is that they have extended relief from VAT to computers purchased for medical research. The Government pray that in aid for what they are doing for charities. Again the Treasury comes out with some fairly extraordinary figures as to what charities will be saved through that extension of VAT relief. It says that about £5 million will be saved. That is an extraordinary figure. If it is grossed up, it comes to about £33 million. I cannot conceive the scale on which charities will have to purchase computers so that there is a £5 million saving as a result of VAT relief.
8.45 pm
I have made inquiries of two charities which one would expect to be at the forefront of computers for medical


research—the Cancer Research Campaign and the Marie Curie Memorial Foundation. Neither believes that that relief from VAT on computers purchased for medical research will make any difference to its expenditure problems. I should be grateful if the Minister would give us chapter and verse on those figures.
When we are talking about anomalies, there is also another matter to consider. I understand that the Government have said in certain quarters that it is impossible to distinguish between socially useful charities and charities with a less socially useful function. With respect, that distinction is present in the reliefs which charities are already given. There is no reason to think that that distinction is any greater in relation to VAT relief for newspaper advertisements than in relation to any other type of tax relief.
The charities' concern is real about this matter. As amendment No. 5 shows, there is cross-party concern at the effects of VAT on advertisements by charities. Because of the way in which charities operate, they have a particular need to advertise their services and to advertise for donations. They have a particular need which is way above that of ordinary corporations, businesses or other individuals. Given that charities perform a service in our society which we all wish to see both encouraged and heightened, I cannot believe that the Government, having listened to the argument, and taking account of the proper concern of charities, will persist in rejecting the amendment.
The amendment is crucial because it is about the type of society that we wish to see. The type of society which the Opposition wish to see, and which I hope many others in the Conservative party wish to see, is one where those who go about the difficult business of raising money for charity have no hindrances put in their way, but are helped and encouraged. One certain way for the Government to make credible their promise to assist charities is to support the amendment.

Mr. John Hannam: I speak in strong support of amendments Nos. 4 and 5 which relieve charities of the further crushing VAT burden that is imposed in the Bill. For several years I have been involved in the parliamentary campaign to try to secure VAT relief for charities. It is sad for me to acknowledge that, despite all our efforts in recent years, the Government are now substantially increasing the charities' VAT burden.
It is hard to believe that it was a VAT working party set up by the present Foreign Secretary, when he was Opposition Treasury spokesman in 1976, which came out strongly in favour of relieving charities from the VAT burden. He said that it should be a priority. That was when VAT was about half what it is today. Since then, despite massive opposition from hon. Members on both sides of the Committee and from all organisations outside, that VAT imposition has been increased substantially. That, as the hon. Member for Sedgefield (Mr. Blair) has pointed out, runs counter to the Government's declared policy of support for voluntary bodies, and for the very ones to which we look to provide social services and the health care and welfare advice that is needed.
It is a sad story. In 1979 VAT was nearly doubled. Last year, VAT was imposed on building alterations, and leading charities providing residential services faced substantially increased VAT bills. The Imperial Cancer Research Fund, since last year's imposition of VAT on

building alterations and extensions, has faced an increased bill of £330,000, the National Children's Home an increase of £200,000, the Spastics Society £120,000, Help the Aged £150,000 and the Royal National Institute for the Blind £95,000. Those are just a few examples of the burdens that such charities are having to face.
Subsequently, my right hon. Friend the Chancellor announced small concessions on building alterations for disabled people and these figures have been slightly reduced, but the potential burdens still remain. The total non-recoverable VAT for members of the Charities VAT Reform Group, which has been doing all the spadework in obtaining the necessary details, and which includes the majority of the top 200 charities, is about £10 million a year.
Many of these charities are trying to meet the increasing demands on their services resulting from the squeeze on local authority spending. Local authorities are able to recover their VAT on the same services as those provided by the charities, yet the charities are not able to recover their VAT. The result of my right hon. Friend the Chancellor's action on building alterations is that many community care projects are being cut. This cannot be a sensible policy, especially in view of the cost effectiveness of the charities' operations.
There is now the added VAT cost on advertising which, for the 18 charities on the steering committee of the Charities VAT Reform Group, will add £387,000 to their advertising budget of £2·5 million. A few weeks ago, the director of the Multiple Sclerosis Society came to the House of Commons to talk to the all-party disablement group. The main point in what he had to say was the importance of advertising as his charity's major fund raiser for research into multiple sclerosis. That society now, faces an increased cost of £50,000 a year. That sum could fund three years of vital research into multiple sclerosis in a small unit. The Spastics Society put its extra cost at £30,000, and its overall bill for the year is now up to £530,000.
My right hon. Friend the Chancellor has said that he expects to raise about £50 million a year from this measure, and he estimates that, of that, the charities will bring in less than £1 million. That is a substantially lower figure than the one produced by the Charities VAT Reform Group, whose figures are based on factual information. As the hon. Member for Sedgefield pointed out, 110 of the top 200 charities will spend £1·2 million extra this year for VAT on advertising, so the Treasury figure, like so many of the forecasts that we have to view these days, is a tailored guesstimate. The Budget concessions on convenants, which raise the limit on higher tax relief from £5,000 to £10,000, will not counterbalance the extra VAT cost. Few charities receive covenants of this size—mainly charities such as the National Trust. The 18 steering committee charities received a total of only £1·3 million last year. They will he paying almost half that amount back in extra VAT this year.
The other concession in the Budget is the relief from VAT for computers purchased for medical research. That, again, is regarded as a negligible concession by the charities group. Even the medical research charities, such as the Cancer Research Campaign and the Marie Curie Memorial Foundation, do not believe that it will be of particular assistance. Again, we have a Treasury guesstimate that this concession will cost £5 million a year. If that is true, it would involve an expenditure by


charities of £33 million a year on computers for medical research. We can rightly ask how this Treasury assessment has been arrived at. Perhaps my hon. Friend the Minister will tell us.
I hope that the Committee will recognise the contradictions inherent in the charities taking on the increased burden of providing extra services that the Government are asking them to carry out, while clobbering the same voluntary organisations with huge added VAT costs. I know the old Treasury argument that is trotted out every time that we trudge along to the "no" room in the Treasury. It is that, while giving VAT relief to charities may be desirable, it has to think of all the administrative difficulties that will result from across-the-board VAT relief or repayment.
We point out that covenants are done on that basis, but the answer is that these are covenants to charities that must have a certain amount of voluntary support before they get donations. That is a weak argument, and experts from the charities have frequently offered to help the Customs and Excise to overcome any administrative problems. Overdue reform of charity law should not be used by the Treasury as an argument against granting a particular concession.
I know that the Government make large sums of money available in the form of grants to worthy bodies, and I commend them for the support that they are giving. However, many organisations, such as the Multiple Sclerosis Society, do not depend on any state aid whatever; they rely entirely for their income on the success of promotional and fund raising activities.
My right hon. Friend the Chancellor could give relief that would be of most benefit in two particular sectors. First, any service undertaken by a charity, such as providing residential care facilities of a similar nature to those provided by a local authority or central Government, or any other service purchased from a charity by a local authority, should be relieved of VAT under section 20 of the 1983 Act. Secondly, there should be immediate relief from VAT on building work, including extensions, alterations, repair and maintenance, undertaken by a charity, on properties on which they receive mandatory rate relief, plus relief from professional fees on such work.
The amendments should be supported. In Treasury terms, they do not involve a large sum of money, but in terms of their effect on our valuable voluntary organisations, including bodies such as Oxfam, War on Want and others engaged in relief operations, they would be invaluable. Their acceptance by the Government would help restore morale among all those working in our charities and reassure me that the Government recognise the impact of the VAT charges on the handicapped and disabled. I support the amendments and am prepared to support them in the Lobby.

Mr. Wainwright: It is pleasant, at long last this evening, to have an amendment from the Labour segment of the Opposition which the alliance can support, out of the bizarre menu that Labour Members have presented to the Committee for today's and tomorrow's debates. I am glad that, on this occasion, we can be united. I am especially glad that the spokesman for the Labour party, the hon. Member for Sedgefield (Mr. Blair), made it clear that he is not using this amendment as a Trojan horse in an attempt to exempt charities from VAT generally. Until

we have seen a scheme for that wholesale exemption which can actually work, the alliance will be unable to support such a proposal.
I am sure that the alliance is not alone in the Committee in saying that any VAT exemption for registered charities must be an exemption for all registered charities. It would be intolerable, although it is sometimes suggested, to say that to economise in administration a general exemption from VAT should be given to some types of charity only or some sizes of charity only. It is a matter for rejoicing that Britain has a pluralist doctrine of charities. People of religions that may seem to some to be a little out of the way are fully entitled to register as charities, and people dispensing education in institutions of which some of us may not approve are equally entitled to the benefit of our charity laws, which date back to good Queen Elizabeth I. Therefore, any attempt to discriminate between one registered charity and another in tax privileges would be resisted by the alliance.

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Mr. Tim Yeo: I wish to clarify, if possible, the Liberal party's view on this matter. Is the hon. Gentleman saying that the Liberal party would support a general relief for charities? If he is saying that he could not support that because of a technical difficulty, why could not charities be included in the same section of the Act as local authorities, which enables them to recover their VAT?

Mr. Wainwright: I do not say either of those things. I hoped that I had made it clear that as soon as someone—it does not matter who—produces a workable scheme that will grant the exemption to every registered charity, regardless of its size, location, aims or administration, the Liberal party, no doubt with other parties, will be glad to consider it. But no such scheme has been produced, and anything that I have seen has been discriminatory and limited to the sorts of charity that are alleged to have the organisation to cope with the VAT problems.

Mr. Gerald Bermingham: Does the hon. Gentleman agree that a scheme whereby a charity could produce its VAT payments quarterly, together with its certificate of incorporation as a charity, and thus obtain recompense, would be perfectly simple to administer and operate?

Mr. Wainwright: If that were the case, we should have heard of it before now. But that is not what is suggested. It is clear that an exemption which enabled the official of a religious body or a school to draw up at the petrol pump or to visit the paint shop, buy either petrol or paint and say, "This is for a charity, so give me a special chit," would be a recipe for chaos. It would be extremely difficult, if not impossible, to police and for the trader to operate. I return to the point that the charities should face: such a scheme could apply only to some sorts of charity. If it is to be discriminatory, we want no part of it.
This debate is pleasing to us because, fortunately, in this matter there need be no discrimination, and the administration and reasonable policing should be relatively straightforward. After all, what is more public than an advertisement? If one buys an advertisement, one declares to the world the transaction in which one is engaged. One cannot buy an advertisement for one's private enjoyment or benefit and pretend that it is a


charitable advertisement, because it is there in the newspaper for everyone to see. In addition, newspaper administration is usually much more sophisticated than administration at a small store selling other articles which some people wish to be exempted from VAT for charitable purposes.
The argument about local authorities does not stand up for a moment. I do not wish to usurp the role of the Government spokesman, but I am sure that he will say that, whereas there are only several hundred local authorities—all public bodies whose minutes are published and where nearly everything is available for inspection—the number of charities runs into six figures. Included in that number are some unusual bodies whose administration does not conform to a general pattern. There is a world of difference—indeed, a Pacific ocean of difference—between local authorities and the great mass of British charities. There is no analogy between them.
Since this exemption would be tolerably easy to administer, could be administered fairly, and would come to the relief of many local charities, such as churches, chapels and other assemblies, because local funds could be used to relieve local needs—the high cost of press advertising bears heavily on bodies with small resources—and because the amendment would relieve all charities without discrimination, we shall be happy to support it.

Mr. Yeo: I speak in strong support of the amendment. I have a long-standing interest in VAT in relation to charities. I was, in fact, the founder chairman of the Charities VAT Reform Group. I am grateful to the hon. Member for Sedgefield (Mr. Blair) for giving that group such favourable publicity.
The main objective of the Charities VAT Reform Group is to secure complete relief for charities from VAT. The group represents most of the major national charities and many of the smaller ones. I must correct a point made by the hon. Member for Colne Valley (Mr. Wainwright). At no stage has the group done other than campaign for complete relief from VAT. We do not suggest that there should be discrimination between charities. If the Government felt that some charities were less deserving than others and chose to make that distinction, that would be a matter for the Government and we would examine their suggestion. The group's objective has always been to secure complete relief. I am sorry that the Liberal party seems to be confused about that point.
To say that VAT relief should be denied to an organisation such as the Spastics Society because VAT relief cannot, apparently, be extended to the Moonies is an extraordinary and convoluted argument. To say that one organisation which is probably universally regarded as deserving will not receive this benefit, because it cannot be given to an organisation which is not universally regarded as deserving is extraordinarily illogical even by Liberal standards.

Mr. Wainwright: Which of the two quite contradictory arguments is the hon. Gentleman putting before the Committee? A few minutes ago, he was saying, "Far be it from the Charities VAT Reform Group to exclude any charity from the scope of its intentions," and that the group had no desire to be discriminatory. Within seconds, he went on to say that it was absurd to put the Spastics Society

on the same level as the Moonies. The hon. Gentleman cannot have it both ways. He should tell hon. Members whether he wants an exemption for all registered charities, whatever the defects in our charity laws, or whether he wants the exemption to be limited to certain types of charity.

Mr. Yeo: I do not want to detain the Committee unnecessarily. That is exactly what I did say. I believe that universal relief should be granted, but if the Government choose to be selective about it I should be happy to look at their selection.
I believe that this relief is justified because of the valuable work done by charities. It is recognised by hon. Members and the public that charities do valuable work. This relief is justified also because of the accepted principle that tax concessions for charities are justified. In fact, charities are exempt from income tax and capital gains, corporation and capital transfer taxes—almost any type of tax one can think of, except VAT.
It is important to be clear about the fact that what we are seeking for charities in terms of VAT is not a concession; it is merely equality of treatment with local authorities, which already recover VAT. When I was running the Spastics Society and it ran a handicapped school for spastic children, that operation looked remarkably similar to those operations run by local authorities. The only difference between the two was that, when I repaired the roof of one of the Spastics Society schools, I paid 15 per cent. more than the local authority. There is great similarity between the two operations. For that reason, it is all the more unacceptable that the position of charities in relation to VAT should remain significantly worse than the position of local authorities or commercial companies. I do not believe that any hon. Member or anyone outside the Chamber wants that to persist.
The Government's arguments are well known. They say that, if they were to grant relief, it would be indiscriminate. That is a most extraordinary argument. That has never deterred the Government from making other concessions, of which in some cases they are justifiably proud,, for example, on legacies and covenants. In those cases no distinction has been drawn between the charities that can benefit from them.
When we ask for VAT relief we are suddenly told that charities are not be entitled to the special relief although they benefit from the other concesions because in the Government's eyes some charities are not deserving. The argument cannot logically be repeated. I hope that my hon. Friend will not repeat it tonight.
It is also argued—I have seen letters from Treasury Ministers about this—that VAT relief cannot be granted because it is only of value to those who pay VAT. That is an extraordinary argument. Of course it is valuable to them only because they suffer from the heavy VAT burden. It is of no benefit to someone who does not pay VAT.
The Royal National Institute for the Blind pays £300,000 a year and the Royal British Legion pays £250,000 a year in VAT. Such sums are paid by many similar organisations. That money could be far better used on behalf of blind people, ex-service men and others.
The argument of lost revenue is put forward, but the benefit to the community of allowing greater resources to remain in the hands of the charities, and the multiplier


effect that that would have, is considerable. That argument does not stand up especially from a Government who are interested in obtaining value for money.
The administrative objections are greatly exaggerated, as my hon. Friend the Member for Exeter (Mr. Hannam) has said. I am disappointed to find that within the past few weeks letters have been sent from the Treasury saying that the relief would have to be granted to as many as 100,000 organisations. I hoped that we had passed that point in the argument. I had hoped that the detailed submissions made over the years by the Charities VAT Reform Group had reduced that figure to a maximum of 20,000 organisations. If, because of its anxiety over administrative costs, the Treasury wished to reduce the numbers still further, it could place a financial limit below which it would not consider individual cases. The numbers could then be reduced to a few hundred.
If my hon. Friend needs further confirmation of the fact that only a few charities have a turnover of more than a few thousand pounds he has only to study the report made last year by a Select Committee in another place in connection with a private Member's Bill which dealt with the reform of local charities.
I have no doubt that if the Government are interested in boosting the voluntary sector the best thing that they could do would be to grant charities a general relief from VAT. I regret that the hon. Member for Sedgefield did not feel able to give the Labour party's unequivocal support for a general relief.
I was deeply disappointed by the Budget this year which contained so little for charities after the submission from the Charities VAT Reform Group to the Treasury. It includes a shopping list of possible reliefs. Limited reliefs could be confined to specific areas—for example, the extra VAT cost of altering buildings as required by fire officers. Such relief could have met with the Treasury's favour. It was a source of great regret to charities that it did not do so.
Newspaper advertisements are a highly sensitive matter for charities. Charities use newspaper advertisements to a great extent for fund raising. Charities are debarred from advertising on television. They can advertise only in newspapers, and that is now to bear this additional cost. The figures have already been quoted. The 110 charities that have been surveyed spent £1·2 million on newspaper advertising. That is not a guess; it is an analysis of the amount of advertising last year which would have borne the extra cost of VAT. If all charities had been included, the figure would have been much higher.
The advertising bill must inevitably result in some curtailment of the charitable work carried out by those organisations. The latest extension of VAT will affect many organisations which have not previously been burdened with it. Oxfam, whose work is done mainly outside this country, has not had the problem before, but it will be brought into the net. Any hon. Member who is worried about the adequacy of our overseas aid programme should support the amendment, because the resources that organisations such as Oxfam have available for helping the Third world will be reduced.
If the Government accept the amendment, they can be confident that they will not be bestowing huge benefits on what they may regard as dubious charities because they are

not large users of advertising space. The proposal will effect such organisations as Actionaid, Dr. Barnardo's and Help the Aged. They will be penalised.
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The Opposition have also tabled an amendment which contrasts with a slightly equivocal alliance position. At the time of the Band Aid record before Christmas, when there was a tremendous outcry in the country about the famine, the right hon. Member for Plymouth, Devonport (Dr. Owen)—in characteristic headline-grabbing form—jumped on the bandwagon and said how much he opposed the collecting of VAT on the Band Aid record. I look in vain for any alliance representative tonight. The right hon. Gentleman is not here, nor is any alliance Member. I shall look carefully at the Division lists to see whether any alliance Member has supported the amendment. If not, we must ensure that we publicise that fact. When there is a bandwagon, we all know who will be the first to jump on it—the right hon. Member for Devonport. But when there is an opportunity to right a wrong, he is not here. I deplore the fact that there is no alliance Member here to support the amendment, and I urge hon. Members to vote for it.

Mr. Alfred Morris: Mine will be a brief intervention in what is a most important debate. I shall speak briefly out of respect for the many other hon. Members who wish to participate. The hon. Member for Exeter (Mr. Hannam) has played a distinguished part in the long campaign against the onerous new burden imposed on charities by the doubling of VAT. I honour the hon. Gentleman and the all-party disablement group, of which he is an officer, for both the strength and the excellence of their advocacy over the years.
As the hon. Gentleman said, the Multiple Sclerosis Society is severely disadvantaged by VAT. It has to pay a large amount of money which could be used for much better purposes. Other victims are the Spastics Society, the Royal National Institute for the Blind and the Royal National Institute for the Deaf. Many others are also badly hit.
I wish to quote from a letter that I received today from Sir John Cox, the director of the Spastics Society. He said:
The Spastics Society was not only disappointed that VAT relief was not given in the budget but we were dealt a double blow when the Chancellor extended VAT to newspaper advertising. The Society will now have to find £30,000 to cover this new VAT bill in addition to the estimated £700,000 it will already have to pay in unrecoverable VAT in 1985–86 alone.
Why mug the good Samaritan in that way? Not only will VAT on advertising restrict the Spastics Society's ability to raise money; it will affect educational advertising that is designed to promote greater understanding of disability and of the problems and needs of disabled people.
Brian Rix, speaking on behalf of Mencap, has said to me:
For running a charity, we are being clobbered.
Is the Minister happy with that comment on the Government's approach? I hope he will think again, as he should, on the basis of the compelling evidence that has been put to him in this debate. Other Governments have found a way around this problem. The Irish Government have a list of charities to which repayment of VAT is made. What stops this Government from returning VAT to the charities whose work is, by common consent, for


the public good? If other Governments can do so, why do the Government here argue that it would be administratively impossible to exclude particular charities? I strongly urge the Minister to listen to Sir John Cox, Brian Rix and all those in the voluntary sector who fervently want him tonight to agree that enough is enough and that this totally unacceptable burden on charities must now cease.

Mr. Dafydd Wigley: I join the voices that have come from all parts of the Committee in support of this series of amendments. I appeal to hon. Members of the Liberal party and others who may feel that we should be arguing about the finer print to concentrate on the main argument. That argument has been put year after year by those who work hard in the sphere which we are discussing.
On the Government Benches I see the hon. Members for Exeter (Mr. Hannam) and for Suffolk, South (Mr. Yeo), who have worked hard for a number of years on behalf of the cause that we are discussing. They must be feeling extremely frustrated that the Goverment have failed so far to respond to the pleas that have been made and are rapidly painting themselves in the public mind as an Administration who are anti-charity.
I find this diffucult to understand, because the Government have on numerous occasions emphasised the important role of the voluntary sector. Time and again we have heard—in connection, for example, with disablement—that the voluntary sector should be doing more and should be filling some of the gaps which inevitably have arisen because of cuts in Government expenditure. Yet the very means of raising money for the voluntary sector—advertisements for charities—is being penalised by the Budget. I feel a sense of despair about the way in which the Government have yet again savaged charities.
As we have heard, there are answers to the technical problems that arise. In any event, those problems must be overcome, because there is a real danger that we shall find ourselves on a downward spiral. Many charities advertise to raise money, and part of that money is recycled to raise more money, and so on. If we go into the cycle the other way round, taking out of the equation money which would be used to raise more money for worthwhile work, less will be available to promote and project charities, and less will come in.
Hon. Members in all parts of the Committee have responded individually when charities have needed urgently to project an issue. We have been asked to chip in £10 or £20, taking perhaps a half-page advertisement in a publication, for a worthy cause. VAT will add 15 per cent. to the cost of that—an imposition that could be avoided.
We have seen how some charities have been able to respond quickly, as with the famine crisis in recent months. Following dramatic pictures being shown on television, advertisements in the press on behalf of some charities hit home at a critical time. VAT on advertising will penalise people doing that excellent work.
I shall not repeat figures which have already been presented to the Committee by other hon. Members. Excellent work has been done by the all-party Charities VAT Reform Group. It is high time that the Government took notice and stopped using the perennial "No" to the pleas that are made on behalf of charities.

Dr. John Marek: I support the amendments, though not unreservedly, because charities must tidy up their own shop. While I support most charities, and contribute to some, there are two types about which I am not happy.
Reference has been made to dubious charities, and there are many of them. The total number of charities runs into six figures. There must be hundreds, perhaps thousands, of charities of a dubious or questionable nature, and if VAT relief were granted on their advertising, that would be taxpayers' money going astray. I support the amendments, but it is clear that a review of charity law, how charities register, and what type of charities may register, is long overdue.
There is another type of charity about which some of my hon. Friends worry. I refer to the public schools. The average person is not aware that they are charities. Those who send their children to public schools are, by and large, wealthy enough to be able to opt out of the public sector. Everyone pays rates and taxes that contribute towards public sector schooling, but some people can opt out of that schooling and have their offspring educated at their own cost. I do not really object to that. I object to the privilege that is enjoyed by those who have been to public schools, but I do not mind that the public schools enjoy charitable status and do not have to pay VAT. Such charities, in any case, rarely advertise in the press. The dubious charities may advertise in the local and national press. The local press will be hit quite hard, certainly over classfied advertising.
Overall, I support the amendments. There may be administrative complications, but I do not really think that the Minister can rely on that answer. My hon. Friend the Member for St. Helens, South (Mr. Bermingham) has suggested a possible solution. Charities could be given relief by means of a cut-off point or some other method. The will should be there. Mencap and Oxfam, for instance, are bona fide, worthwhile charities, and it is immoral to tax such bodies.
I have some reservations. Charity law needs to be tidied up. However, I hope that the Minister will be able to suggest something on Report which will embody the spirit of the amendments in the Finance Bill.

Mr. O'Brien: Among the amendments to the provision about VAT on newspaper advertising, amendment No. 4 has created the greatest concern among all parties in the Committee. I hope that the Minister will take note of the concern expressed in all sections of the Committee on this important and emotive subject.
The charities have been hard done by in the past. When VAT was doubled, they were hit hard. The imposition of VAT on improvements to accommodation and new building hit charities in many areas, particularly those engaged in the relief of poverty. I hope that the Minister will consider the points made tonight about the relief of VAT on advertising by charities.
A letter that I have received from the Minister of State says:
The Government does of course recognise the immensely valuable role which charities play in this country, not least in taking the pressure off health and local authorities.
That is a truism, and I hope that the Minister will accept it this evening. However, I am sure that when he replies to the debate he will use the following passage from the same letter:


VAT reliefs for charities on specialised goods needed for their work have been significantly extended since 1979 to include ambulances …welfare vehicles
and other aids for the handicapped.
I accept that, but a number of hon. Members have mentioned the number of charities that will have to pay VAT on advertising. A prime example is the Royal British Legion, which has to advertise—sometimes even with full-page advertisements—to get help. The legion will be hit hard. It pays £250,000 in VAT each year and that burden will rise. The legion does sterling work to relieve poverty and does not receive covenants of £10,000 and so on, so it will not benefit much from other changes in the Budget.
I hope that the Minister of State will accept the points made by hon. Members on both sides of the Committee. I urge Conservative Members to mobilise their forces, because no Opposition Member will oppose the amendment. However, it would be preferable if the Minister agreed to accept it.

Mr. Bermingham: I am always puzzled when people say that tasks are administratively difficult. Where there is a will, there is a way.
Every charity has a registered number. A group cannot become a charity without being registered. Therefore, every charity has a number. Even the Treasury should be able to understand that.
All that we need to do is to persuade the Treasury to agree that every charity that advertises should receive from the company to which it pays the money a receipt showing the number and name of the charity and a sum of money plus VAT. Like all registered traders, the charity could take its receipts to the Customs and Excise every quarter and claim tax back.
Numerous traders make such claims every quarter and the number of charities that will advertise is tiny. The Treasury does not seem to understand that the vast bulk of the 100,000 charities are organisations such as the South Malden Registered Tree Preservation Society—I have made up that example—with assets of £150, virtually no income each year and no activity. It would be eminently easy for charities to get the money back.
Compassion is supposed to rule in our world. The Government keep telling us that these are stringent times and there must be self-help and private sector involvement in helping the elderly, the young, the sick, the disabled and everybody else. But only an uncompassionate Government could say to those whom they are asking to help ohers, "Terribly sorry. In order to raise funds, we shall take a little more from you."
The Government say that the change will cost about £1 million. I do not care about the sum involved, because a greater principle is involved, which is whether we have a compassionate, caring society that recognises the value of work done by charities.
Charities need to advertise to raise funds. Our national budget is over £120 billion and £1 million is a relatively infinitesimal sum. Any administrative difficulties could be overcome by the simple method that I have recommended. I know from experience that the Treasury does not like anything that is simple or straightforward or that seeks to exempt. Charities nowadays, it would seem, are as much for squeezing as anybody else.
I saw the Prime Minister on the 6 o'clock television news tonight attending a party in the House today for handicapped children. When asked whether she would rather be at Prime Minister's Question Time or at the party, she rightly said at the party, and how much she admired the character of the children. I wonder whether the Prime Minister would take a little time this evening to extend that flicker of human kindness and pass it on to the Chancellor of the Exchequer. She might suggest that, if the Government are to have a compassionate face, they could start by telling Treasury officials not to worry about the complexity, and that the hon. Member for St. Helens, South had offered a simple solution to how charities could get back the money, so Ministers could be instructed to withdraw the VAT on advertisements placed in newspapers by charities.
It would be not a bad start to the second quarter of 1985 if the Government would show just a little compassion and let the charities keep all the money that they raise through advertising. After all, the charities need it far more than the Government do.

Mr. Hayhoe: The debate has ranged much wider than the amendment. I make no complaint about that, because I know that the subject excites a great deal of genuine and sincerely held interest and deep passion throughout the House.
First, I pay tribute to the all-party Charities VAT Reform Group, which was started by my hon. Friend the Member for Suffolk, South (Mr. Yeo). Although I have had disagreements with representatives of the group when I have met them, I fully support the work of the group. It helps Parliament and the country better to understand the problems. As discussions proceed, I hope that an even deeper understanding of many of the problems involved will develop between us.
I deal first with the cost of the amendment. Although I am advised that the cost will be approximately £1 million, I acknowledge, as has been said by the hon. Member for Sedgefield (Mr. Blair) and other hon. Members, that the Charities VAT Reform Group, in a survey of a limited number of charities, has already estimated that the cost would be £1·2 million. Indeed, as I said to my hon. Friend the Member for Suffolk, South two or three weeks ago, I should like to put my officials in touch with those responsible for the survey. We ought to be able to agree on the factual realities of the matters under discussion. We may differ about how we treat them, but at least we should attempt to achieve a better understanding. I am concerned at these apparently substantial differences between the estimate that the hon. Member for Sedgefield gave, supported by some of my hon. Friends, and the estimate that I have been given. That offer remains open. I hope that discussion will take place and that we can clarify the position.

Mr. Blair: I support the Minister in his statement. He said that he would like to verify the figure of £1·2 million. If the figure is verified, will that make a difference to his position on the amendment?

Mr. Hayhoe: No, it will not, as the hon. Gentleman will discover. However, I think that as far as possible on this and many other issues we should try to achieve at least a common acceptance of the facts because that is a prelude to reaching decisions which are better informed, and that surely is desirable.
I am advised that the £5 million estimate is based on present expenditure on medical computers by bodies which will be eligible for the relief, including charities providing care and treatment for the handicapped and research institutions, many of which are charitable bodies. For example, universities and health authorities will qualify for the relief. The estimate is not precise and the value of the relief is expected to increase as the use of computers increases. Nevertheless, it is the best estimate available and it goes much wider than the charities that have been canvassed because under the old regime universities and research institutions had to pay VAT, whereas they will now benefit from the relief announced by my right hon. Friend the Chancellor.

Mr. Blair: If the £5 million estimate is based not primarily on charities but on other bodies which will secure relief on computers for medical research, does the Minister accept the charities' view that the relief will have a neglible effect on their costings?

Mr. Hayhoe: I do not wish to dispute the specific replies given to the hon. Gentleman by specific charities. I am simply saying that the relief must be seen in a wider context, in which, I am advised, a benefit of some £5 million will flow from my right hon. Friend's proposal.
The hon. Member for Sedgefield said that he intended to support amendment No. 5 which deals with registered charities, but he may not fully appreciate the effect of that qualification. Not all charities are required by law to register with the Charity Commission and that qualification would exclude the churches as well as charities in Scotland and Northern Ireland. It is estimated that about 40 per cent. of the charities in the United Kingdom are not among the 150,000 or so registered with the Charity Commission.
The hon. Member for St. Helens, South (Mr. Bermingham) also referred to registration, but this is a very complicated area. My hon. Friend the Member for Suffolk, South, with whose group we have discussed these matters, will recognise that complexity, as did the hon. Member for Colne Valley (Mr. Wainwright)

Mr. Bermingham: I think that the Minister has misunderstood my point. The only charities known to the law are the registered charities, each of which has a number, so all that one needs to do is to have that number put on the invoice to the charity.

Mr. Hayhoe: If the hon. Gentleman reads my explanation in Hansard, he will realise that that would exclude about 40 per cent. of the bodies which are seen as charities and benefit as charities within the United Kingdom. That illustrates the complexity of the matter.
I have naturally considered carefully the possibility of special relief for charities in this context, as I did when VAT was extended to building alterations last year. Such relief, however, would be indiscriminate in that it would not be restricted to those providing vital welfare services and enjoying wide public support but would extend to thousands of far more controversial and restrictive organisations—religious sects, historical and antiquarian societies, musical and brass band societies, theatres and art galleries, and so on. An immensely broad group of organisations qualify for charity status in that sense.
I well understand those who have called with feeling for a review of charity law. However, that is wider than the

scope of the amendment and my responsibilities within the Treasury. For many years I have considered the matter, and I echo the sentiment that there is considerable merit in seeking a rationalisation of the law on charities. However, tonight I must deal with the amendment and what has been said in the context of the present position.
9.45 pm
The way in which we now operate would lead to a lack of discrimination between charities about relief. I am speaking about more than just relief on advertisements. At least half of the interventions were about general charity relief. Most of both speeches of my hon. Friends related to the need for general relief, and the majority of hon. Members who participated in the debate wanted general VAT relief for charities. Their speeches went wider than the amendment, but every hon. Member who spoke supported the narrower relief for press advertising.

Mr. Alfred Morris: I have been following the Minister carefully. He was rightly worried about the veracity of figures. I can assure him of the accuracy of the figures given to me by Sir John Cox, the director of the Spastics Society. How can the Minister justify the imposition of £730,000 in unrecoverable VAT on the Spastics Society in the present tax year? Is the Minister saying that that is justified?

Mr. Hayhoe: That is the result of the law as it exists. When the right hon. Gentleman was in government, his Government did not opt for general VAT relief for charities. I acknowledge that the increase in the general rate of VAT from 8 per cent. to 15 per cent., the extension of VAT to alterations, and this year's extensions increase that burden. Many of the interventions dealt with the principle involved, but the Labour Government did not believe that they could justify giving general VAT relief. I could quote what the then Chancellor of the Exchequer said, but I shall not weary the Committee with that.
Reference has been made to the additional cost imposed by press and magazine advertisements being VAT-able for charities. The extra reliefs that have been given apply within the entire charitable area, although not to the same people, and exceed the new imposition. Most of the debate has been about the argument for general relief. If this modest relief—modest in terms of money because only a million or two are involved—were conceded, it would inevitably lead to the more expensive claims for general VAT relief. A significant number of hon. Members who have spoken have made that clear. Because of the difficulties that we rehearsed last year in a similar debate about VAT on alterations, in which larger sums were involved, I regret that I cannot advise the Committee to support the amendment. It must be seen in the general context. The Government have given direct tax concessions worth about £400 million a year, which have been substantially extended since 1979. Tribute was rightly paid to the substantial increase in grants from the Government to charitable bodies.
Looking at the question in the round, while recognising the deep feelings of those who believe that charities should be excluded from the extension of VAT to their advertising, for the wider considerations that I have described, I must recommend the rejection of the amendment.

Mr. Blair: The fault of the Minister is not that he has made a bad speech but that he has a bad case. The tragedy


of a debate such as this is that it has been won conclusively by speakers from each side of the House, yet one fears for the conclusion of the vote.
The Minister says that there is an anomaly in giving VAT relief to charities on their newspaper advertisements. Charities have a series of reliefs from tax. There is no greater anomaly in adding the proposed relief than in allowing charities relief from capital transfer tax, corporation tax, or any of the other taxes.
If it is said that the administrative difficulties in giving VAT relief on newspaper advertisements are too great, my reply is that we should never accept an argument from a Minister about the simple cost of administration until it is given great scrutiny. One such line from a Minister in a debate of this sort is a wholly insufficient basis for rejecting the amendment.
The Minister's argument was even worse when he dealt with the costings. The Minister had no proper reply to any of the points concerning costings. I asked the Minister whether, should he discover that the charities were right about the additional costs, that would change his mind. He said that it would not, yet he says that the facts are necessary in order to make a proper decision. It seems that the Minister makes a decision first and inquires into the facts afterwards. That is a cackhanded method of administration.
It is not right to say that one must accept the general case for VAT relief for charities in order to support the amendment. I purposely said that at the beginning because I wanted to maximise support, and I do want to get drawn into that broader argument. The case for VAT relief on newspaper advertisements is a particular one, because the way that charities raise money is through advertising. That puts them in a totally separate category. The Minister's attempts to resist the amendment do not reflect credit on him. It is time that the Government's reality matched their rhetoric. It is time that they supported amendments which do precisely what they want to do and encourage charities in our society.

Question put, That the amendment be made:—

The Committee divided: Ayes 119, Noes 220.

Division No. 200]
[9.54 pm


AYES


Adams, Allen (Paisley N)
Cook, Frank (Stockton North)


Ashdown, Paddy
Cook, Robin F. (Livingston)


Ashton, Joe
Corbett, Robin


Atkinson, N. (Tottenham)
Corbyn, Jeremy


Bagier, Gordon A. T.
Cowans, Harry


Beith, A. J.
Craigen, J. M.


Bennett, A. (Dent'n &amp; Red'sh)
Davis, Terry (B'ham, H'ge H'l)


Bermingham, Gerald
Deakins, Eric


Blair, Anthony
Dewar, Donald


Boyes, Roland
Dickens, Geoffrey


Bray, Dr Jeremy
Dixon, Donald


Brown, Gordon (D'f'mline E)
Dormand, Jack


Brown, Hugh D. (Provan)
Douglas, Dick


Brown, R. (N'c'tle-u-Tyne N)
Dubs, Alfred


Bruce, Malcolm
Duffy, A. E. P.


Buchan, Norman
Dunwoody, Hon Mrs G.


Caborn, Richard
Eadie, Alex


Callaghan, Jim (Heyw'd &amp; M)
Eastham, Ken


Campbell-Savours, Dale
Edwards, Bob (W'h'mpt'n SE)


Clark, Dr David (S Shields)
Evans, John (St. Helens N)


Clarke, Thomas
Fatchett, Derek


Clay, Robert
Field, Frank (Birkenhead)


Cocks, Rt Hon M. (Bristol S.)
Fields, T. (L'pool Broad Gn)


Concannon, Rt Hon J. D.
Fisher, Mark





Foster, Derek
O'Neill, Martin


Foulkes, George
Pendry, Tom


Garrett, W. E.
Penhaligon, David


George, Bruce
Pike, Peter


Gilbert, Rt Hon Dr John
Powell, Raymond (Ogmore)


Godman, Dr Norman
Prescott, John


Golding, John
Randall, Stuart


Gould, Bryan
Redmond, M.


Hamilton, James (M'well N)
Rees, Rt Hon M. (Leeds S)


Hannam, John
Richardson, Ms Jo


Hardy, Peter
Sheldon, Rt Hon R.


Hogg, N. (C'nauld &amp; Kilsyth)
Short, Ms Clare (Ladywood)


Howells, Geraint
Short, Mrs R.(Whampt'n NE)


Hughes, Robert (Aberdeen N)
Skinner, Dennis


Hughes, Sean (Knowsley S)
Soley, Clive


Janner, Hon Greville
Spearing, Nigel


Jones, Barry (Alyn &amp; Deeside)
Stewart, Rt Hon D. (W Isles)


Kennedy, Charles
Stott, Roger


Kirkwood, Archy
Strang, Gavin


Lamond, James
Thomas, Dr R. (Carmarthen)


Lewis, Ron (Carlisle)
Thompson, J. (Wansbeck)


Lewis, Terence (Worsley)
Thorne, Stan (Preston)


Litherland, Robert
Tinn, James


Lloyd, Tony (Stretford)
Wainwright, R.


McDonald, Dr Oonagh
Wardell, Gareth (Gower)


McKelvey, William
Wareing, Robert


McNamara, Kevin
Welsh, Michael


McTaggart, Robert
Wigley, Dafydd


McWilliam, John
Winnick, David


Madden, Max
Winterton, Mrs Ann


Marek, Dr John
Woodall, Alec


Maxton, John
Wrigglesworth, Ian


Meadowcroft, Michael
Yeo, Tim


Michie, William



Millan, Rt Hon Bruce
Tellers for the Ayes:


Mitchell, Austin (G't Grimsby)
Mr. Frank Haynes and


Morris, Rt Hon A. (W'shawe)
Mr. Allen McKay.


O'Brien, William





NOES


Adley, Robert
Chalker, Mrs Lynda


Alexander, Richard
Chope, Christopher


Ancram, Michael
Clark, Dr Michael (Rochford)


Arnold, Tom
Clarke, Rt Hon K. (Rushcliffe)


Ashby, David
Cockeram, Eric


Aspinwall, Jack
Conway, Derek


Atkins, Robert (South Ribble)
Coombs, Simon


Baker, Nicholas (N Dorset)
Cope, John


Baldry, Tony
Cormack, Patrick


Banks, Robert (Harrogate)
Couchman, James


Batiste, Spencer
Cranborne, Viscount


Beaumont-Dark, Anthony
Currle, Mrs Edwina


Bellingham, Henry
Dorrell, Stephen


Benyon, William
Douglas-Hamilton, Lord J.


Best, Keith
Dover, Den


Bevan, David Gilroy
Dunn, Robert


Blackburn, John
Durant, Tony


Body, Richard
Dykes, Hugh


Boscawen, Hon Robert
Evennett, David


Bottomley, Peter
Eyre, Sir Reginald


Bottomley, Mrs Virginia
Fallon, Michael


Bowden, Gerald (Dulwich)
Farr, Sir John


Brandon-Bravo, Martin
Favell, Anthony


Bright, Graham
Fenner, Mrs Peggy


Brinton, Tim
Fletcher, Alexander


Brooke, Hon Peter
Forman, Nigel


Brown, M. (Brigg &amp; Cl'thpes)
Forth, Eric


Bruinvels Peter
Fox, Marcus


Bryan, Sir Paul
Gale, Roger


Buck, Sir Antony
Gower, Sir Raymond


Budgen, Nick
Gregory, Conal


Bulmer, Esmond
Griffiths, E. (B'y St Edm'ds)


Burt, Alistair
Hamilton, Hon A. (Epsom)


Butcher, John
Hampson, Dr Keith


Butterfill, John
Hargreaves, Kenneth


Carlisle, John (N Luton)
Harris, David


Carlisle, Kenneth (Lincoln)
Harvey, Robert


Carlisle, Rt Hon M. (W'ton S)
Hawkins, Sir Paul (SW N'folk)


Carttiss, Michael
Hayes, J.


Cash, William
Hayhoe, Barney






Heathcoat-Amory, David
Price, Sir David


Heddle, John
Raffan, Keith


Henderson, Barry
Raison, Rt Hon Timothy


Hickmet, Richard
Rathbone, Tim


Hind, Kenneth
Rees, Rt Hon Peter (Dover)


Hirst, Michael
Renton, Tim


Howell, Ralph (N Norfolk)
Rhodes James, Robert


Jessel, Toby
Rhys Williams, Sir Brandon


Jones, Gwilym (Cardiff N)
Ridsdale, Sir Julian


Jones, Robert (W Herts)
Roberts, Wyn (Conwy)


Jopling, Rt Hon Michael
Robinson, Mark (N'port W)


Kilfedder, James A.
Roe, Mrs Marion


King, Roger (B'ham N'field)
Rossi, Sir Hugh


Lamont, Norman
Rowe, Andrew


Lang, Ian
Ryder, Richard


Lawrence, Ivan
Sackville, Hon Thomas


Leigh, Edward (Gainsbor'gh)
Sainsbury, Hon Timothy


Lennox-Boyd, Hon Mark
St, John-Stevas, Rt Hon N.


Lester, Jim
Sayeed, Jonathan


Lewis, Sir Kenneth (Stamf'd)
Shaw, Giles (Pudsey)


Lightbown, David
Shaw, Sir Michael (Scarb')


Lilley, Peter
Shelton, William (Streatham)


Lloyd, lan (Havant)
Shepherd, Colin (Hereford)


Lloyd, Peter, (Fareham)
Shersby, Michael


Lord, Michael
Silvester, Fred


Luce, Richard
Sims, Roger


McCurley, Mrs Anna
Skeet, T. H. H.


Macfarlane, Neil
Smith, Tim (Beaconsfield)


MacGregor, John
Soames, Hon Nicholas


Maclean, David John
Speller, Tony


McNair-Wilson, P. (New F'st)
Spencer, Derek


Major, John
Stanbrook, Ivor


Malins, Humfrey
Steen, Anthony


Malone, Gerald
Stern, Michael


Maples, John
Stevens, Lewis (Nuneaton)


Marland, Paul
Stewart, Andrew (Sherwood)


Marlow, Antony
Stradling Thomas, J.


Mates, Michael
Taylor, John (Solihull)


Mather, Carol
Taylor, Teddy (S'end E)


Mayhew, Sir Patrick
Terlezki, Stefan


Mellor, David
Thomas, Rt Hon Peter


Merchant, Piers
Thompson, Donald (Calder V)


Meyer, Sir Anthony
Thompson, Patrick (N'ich N)


Miller, Hai (B'grove)
Thorne, Neil (Ilford S)


Mills, lain (Menden)
Thornton, Malcolm


Mills, Sir Peter (West Devon)
Thurnham, Peter


Miscampbell, Norman
Townend, John (Bridlington)


Mitchell, David (NW Hants)
Tracey, Richard


Moate, Roger
Trotter, Neville


Montgomery, Sir Fergus
Twinn, Dr lan


Moore, John
van Straubenzee, Sir W.


Morris, M. (N'hampton, S)
Viggers, Peter


Morrison, Hon C. (Devizes)
Waddington, David


Morrison, Hon P. (Chester)
Wakeham, Rt Hon John


Moynihan, Hon C.
Waldegrave, Hon William


Neale, Gerrard
Walden, George


Nelson, Anthony
Waller, Gary


Newton, Tony
Ward, John


Nicholls, Patrick
Wardle, C. (Bexhill)


Norris, Steven
Watson, John


Osborn, Sir John
Watts, John


Ottaway, Richard
Wheeler, John


Page, Sir John (Harrow W)
Whitfield, John


Page, Richard (Herts SW)
Whitney, Raymond


Parkinson, Rt Hon Cecil
Wiggin, Jerry


Parris, Matthew
Winterton, Nicholas


Peacock, Mrs Elizabeth
Wolfson, Mark


Pollock, Alexander
Wood, Timothy


Portillo, Michael



Powell, William (Corby)
Tellers for the Noes:


Powley, John
Mr. Tristan Garel-Jones and


Prentice, Rt Hon Reg
Mr. Michael Neubert.

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Norman Buchan: We all know what agitation there has been during the past year at the

Government's intention to do the unspeakable arid the unthinkable—to tax publications, books and newspapers. The campaign was vigorous, accurate and eventually successful. However, there is no doubt that the possibility was large, and the likelihood was that it would have happened had the campaign not been mounted.
I recall that the last time such a proposition was mooted was in 1940, at the very time when we were fighting with our backs to the wall and being exhorted by Churchill to fight on the beaches. The Battle of Britain was being fought overhead, yet the Parliament of 1940 decided, against the will of the Chancellor, Kingsley-Wood, that there should be no such tax. A. P. Herbert said that if there were a tax on the Bible, it would be the first time that the word of God had been taxed. The thing was blown out of the water in a burst of laughter. This year's campaign has prevented a similar contemptuous end, because I believe that there are enough Conservative Members who have voted against such a proposition if it had been put forward.
We are therefore left with this mean-minded fag end of a proposition to bring in the same sort of taxation on newspapers and publications, with the tax on advertisements. I am no friend of such a tax. By definition, a value added tax is always unjust and can cease to be unjust only when it is highly selective, and when it is highly selective it can make all sorts of errors in application. We all know that. VAT is an unfair and unjust tax, so I am no friend of it. I am also no friend of the institution that brought it into being—the Common Market.
However, there is a case for looking at the expenditure of big business on advertising. As the arguments over the past two or three hours have shown, certain issue have at least been recognised by some Conservative Members; for example, in relation to job advertisements. There has been cross-party sympathy, although not necessarily expressed by a high vote.
We are left with the principle of the issue and also with other areas that are affected adversely. I shall refer to only one where I thought that the Government would show some consideration. It is the arts, first, because the arts already pay VAT. It is nonsensical that the theatre, music and cinema are subsidised by the state on the one hand, and on the other pay VAT, which immediately reduces the level of what is a mean and insufficient subsidy. The arts are in peril because of what they have to pay in VAT. It is nonsense.
Secondly, the arts sell their wares in a particular way—by newspaper advertising. The problem is that they have to advertise not once or twice, but continuously. Unless they advertise, day in, day out and night in, night out, they cannot sell their wares. A large-scale single advertisment does not do, because people need to know what is happening on a particular night. For instance, at the end of the week there will be a swapping over of "Henry V" and "Richard III" by the Royal Shakespeare Company. People need to know the dates on which the plays will be on. Therefore, there has to be continuous and expensive advertising.
In the Standard, three or four pages are taken up night in, night out by necessary large-scale advertising. It is costly to the major companies. It is costly to music establishments which have a run of concerts throughout the week. The programmes have to be made known. It is expensive for the theatres, and above all for the small theatres—the small visiting theatre or local theatre


which must have continual advertising. I assure the Minister that the level of taxation on such small theatres will be heavy and continuous.
That would not be too bad if the Government were continuing their support for the arts, but over the past few years they have, and in the forthcoming two or three years they will, savagely cut support for the arts. Next year, support for the arts will be cut in real terms by 8 per cent. When we add to that rate-capping on local authorities, it will be seen that many of the arts will be in extreme danger. Even that monetarist Rees-Mogg, the chairman of the Arts Council, has referred to the number of clients that will be put in jeopardy because of the Government's subsidy policies, which will result in a cut this year and every future year. On top of that comes a thing which may topple many of them, the imposition of VAT on the very sector in which they should be expanding to draw in more box office returns to replace the lost subsidy—advertising.
The Committee must oppose the clause. I hope that we can build up a campaign to get some sense into the Government and some understanding that if they are to impose this tax, although I hope that they will not and will concede the case at a later stage, they must at least make it understood to the Minister for the Arts and the Chancellor that the forecast level of subsidy must be increased. Some measures must be taken to stop the parlous crisis facing the arts and provide proper support to them.

Mr. O'Neill: Much of what I was to say has already been covered and I have already alluded to this subject, in a debate on the Consolidated Fund Bill some weeks ago. I am sponsored by the National Graphical Association. It has to be made clear that the impact of this imposition on employment in the newspaper and print industry generally will be severe. It is not just the 35,000 jobs in the national newspapers, the 68,000 jobs in the regional newspapers or the 19,000 jobs in magazines that will be affected, but the 14,000 jobs in distribution. In all, some 136,000 people are engaged in the production of newsprint and magazines. We shall have to wait to see how true is the Minister's claim in an earlier debate that the impact on employment will be only marginal.
John Le Page of the Newspaper Publishers Association has said that he has fears about the future of two titles. The Newspaper Society has said that this may have a serious impact on the provincial press. It would be dangerous to quote figures about the impact but it will be more than marginal. I say that for several reasons. The provincial press is now of such a flexible character that we are talking not just about the publication of one or two weekly titles. Often, there are big print centres involving several newspapers that, because of the technology, have to be [Interruption.] Is it necessary for me to speak above a chorus of gabble from Conservative Benches?

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong): Order.

Mr. O'Neill: Thank you, Mr. Armstrong.
The local newspapers on which many of our constituents depend for information are printed on presses that produce a variety of other products and that bring about the viability of the printing firms that produce the

papers. They do not exist only to produce local newspapers, but if the crutch of the local newspaper is removed, the fragile financial basis of those firms will be put in considerable danger.
We are not talking about jobs exclusively in the newspaper industry. The impact of the imposition of VAT on advertising could be such that some local titles will be endangered. It will certainly be a considerable burden on free sheets, which are often produced in the periods during which local machinery is lying idle. It would be a drain on the business if those machines were not employed.
10.15 pm
It is also fair to say that much of the new machinery which is being used in the provinces, unfortunately to a much greater extent than in other areas of the print industry, is expensive equipment whose use depends upon agreements being reached between the unions and management as to its maximum utilisation. For that to be achieved requires delicate and often painful negotiations by both sides, and in some aspects of the newspaper industry in the provinces, that painful stage has been reached, and discussion is continuing about the final stage in the implementation of the new technology. There is no point in print houses anticipating the maximum utilisation of their machinery if they discover that some of their titles or magazines will be withdrawn from production because they are no longer viable after the imposition of VAT.
The Minister suggested that the imposition of VAT will tidy up media advertising so that the press is treated similarly to radio and television. We heard earlier this evening about classified advertising. In terms of the technology and the numbers of people who can be contacted through the press—the viability of the print industry in general is not healthy, despite the many millions of pounds that have been poured into new equipment and techniques—too much of the attractive and expensive business that should go to British printers is going abroad. We are not talking about areas that have big problems with trade unions, but about the production of the brochures used by Thomson Holidays and some mail order firm catalogues, much of whose work is being done in print shops in Italy and West Germany. We are talking about sustaining a British industry that is fighting manfully to embrace new technology and take advantage of the improvements available to it. But it is being denied the encouragement and support that it deserves from the Government.
For the Government to say that simply because VAT is imposed on independent radio and television it must be imposed on the press, too, is nonsense. The same sort of tidy mindedness is clear when one reflects that, in last year's Budget, VAT was inposed on fish and chips, while this year it will be imposed on the newspapers in which they are wrapped.
This is a sad day for Britain, but it is not as sad as it could have been. We know that VAT could have been imposed on books and newspapers, and we are thankful that it has not been. But, since they have gone this far, we do not know how much further the Government will be encouraged to go. I recognise that we must allow this clause to go through. The two earlier amendments related to two special areas of the debate and did not take account of the industry which produces the product that is being taxed, although I believe that we should have taken


account of that. I should have thought that the Minister could have found a better target from which to raise that much-needed £50 million.

Mr. Austin Mitchell: The extension of the positive rate of VAT to newspaper advertising is unnecessary, fiddling, provocative and prejudiced—in other words, it is fairly typical of the Government's policies and strategies. First, it is part of that strategy on which the Government have embarked of taxing everything on which they can lay their hands—not only fish and chips but hamburgers, matches and lighters. It is the "we need the money" syndrome of spreading the tax burden to create the pretence that they are reducing the burden of direct taxation when all they are really doing is shifting the burden on to any item that will bear it. This is part of the typical strategy of tax duplicity on which the Government have embarked.
Secondly, we object to this measure because it will adversely affect newspapers. My particular concern is with the provincial press. The sins of Fleet street are visited on the provincial press, even to the seventh edition. All too often the provincial press is in financial difficulties. It is facing increasing competition from Fleet street newspapers which seem, in many cases, to have fallen off the back of the advertising industry. Those Fleet street journals often bear as much resemblance to newspapers as this Government's policies bear to conservatism. They are driving the provincial press into difficulties.
It is vital to our democratic way of life to preserve the provincial press. Unfortunately, all too often, the maintenance of good objective standards and good journalism depend not on the stimulus of real competition but on a monopoly's good will and conscience. Many of the evening newspapers are part of a monopoly. Some papers—the Grimsby Evening Telegraph is one, as I am sure the hon. Member for Brigg and Cleethorpes (Mr. Brown) will agree—maintain the honourable standards of journalism, albeit in the face of increasing difficulties. The financial constraints imposed upon them will be heightened by this measure which will affect newspaper revenue. About 80 per cent. of provincial press revenue comes not from the cover price but from advertising.
Thirdly, this is a retrograde measure because it is truckling to the EEC Commission. My impression is that if one gives such a commission an inch, it will take a kilometre. This attempt to end our zero-rated system of VAT is illegal, irresponsible and unnecessary. It is certainly not justified by the circumstances. Clearly the Government feel a need, for some strange reason, to bow in the EEC's direction. The Government are not able to tackle certain other aspects. They certainly would not wish to extend VAT to safety clothing for industrial purposes, but they have hit the newspapers.
I hope that the newspapers will retaliate by treating this Government and the Conservative party with the same impartiality, courtesy, objectivity and factual accuracy with which they have treated the Labour party over the years. The newspapers must accept that this measure is a direct consequence of the type of policies supported by them—increasing the tax burden by increasing unemployment and deferring to the EEC which, all too often, the newspapers support and back.
Fourthly, this is a retrograde measure because it hits especially severely at those who cannot pass on the VAT burden, including small business and small advertisers. It

hits the small classified advertisements of ordinary people announcing events of joy or sorrow—births, marriages and deaths. Such advertisements commemorate the passing of loved ones in terms that may appear fusty and homespun to the sophisticated minds on the Government side but they are deeply sincere. These advertisements should certainly not be the objective of a tax.
Newspapers are working in an increasingly competitive advertising market. There is intense competition. I want to ask the Minister of State a question that affects the other participants involved in this competition. Is the competition on an equal footing? I am interested in the competition from pirate radio. Pirate radio is illegal. There has been an enormous increase in the number of pirate radio stations. In an answer earlier this year, the Parliamentary Under-Secretary of State for Trade and Industry said:
my Department has monitored 74 unlicensed broadcasters on radio".-[Official Report, 8 February 1985; Vol. 72, c. 747.]
A list is included which unfortunately does not contain Radio Arthur which was broadcasting for the NUM during the pit stoppage. The Department took action on 124 occasions in 1984 and so far this year it has taken action against about 15. That does not have the effect of closing them because generally the radio stations continue to broadcast.
Those radio stations broadcast on the basis of advertising revenue which is taken from the pool of advertising revenue which clause 10 proposes to tax. I understood that it was an offence to advertise on pirate radio. It turns out that in their wisdom the Labour Government made it an offence under the Marine, &c., Broadcasting (Offences) Act 1967 to advertise on stations transmitting from outside territorial waters. The stations, like the Government, have to be at sea before they commit an offence relating to advertising. The two stations which broadcast at sea deny that they take advertising revenue from this country. We do not have to believe them, but they deny it.
It is not possible to stop advertising. Although the Department of Trade and Industry has written and made threatening noises to 300 companies which have been advertising on pirate radio, it is not possible to deal with them unless they are charged with aiding and abetting. That means that the principal offender—the pirate radio—must be found guilty.
The rates for advertising on pirate radio vary enormously. A 30-second slot on Capital Radio costs £705 whereas on Radio Jackie, in south-west London, it costs £5. That may not be enormous amount, but it is taken from the pool of advertising revenue. I have to confess to an illegality by listening to Skyline Radio on the way home at night. It is quoted in The Guardian that advertising on Skyline Radio costs between £50 and £225. Payment is strictly in advance. Advertising brings that station about £600 a week. It exceeds the basic running costs of £400. It is, therefore, possible to make money out of pirate radio stations. Are those pirate radio stations registered for VAT? One of them boasts of being registered for VAT. Are the 74 registered for VAT? If they are illegal, how can they be registered?
I have heard car hire firms, hotels, discos, garages and a whole series of businesses advertising on pirate radio. Is the VAT payable on those advertisements allowable


against tax? Is the advertising of those firms tax deductible? The matter plainly raises a moral issue and it is perhaps a little unfair to spring it on the Minister.
If the VAT on advertising or the advertising on pirate radio are tax allowable, why are not the hiring of call girls, prostitution or any other form of illegal activity allowable? That opens fascinating vistas that I hope the Minister will deal with. Those questions must be answered in the light of the competition that these stations now provide for legitimate advertising on commercial radio, which already pays VAT, and for newspapers, which will pay VAT under these proposals.

Mr. Peter Pike: I wish briefly to support my hon. Friends who oppose the clause. The proposal to impose VAT on newspaper advertising is a retrograde step. Although the Government may not have actually spread the rumour prior to the Budget that VAT might be imposed on both books and newspapers, they welcomed the publicity, because it made the proposal in the Budget appear small fry compared with what people feared.
The Government are moving in the wrong direction, and having taken this first step I fear that they will be encouraged to move further down that road. Although VAT has not been imposed on books in this Budget, they may move in that direction in future. Therefore, we must oppose the clause. I hope that the Government have second thoughts because we are talking about a small and insignificant part of the overall Budget.
I am concerned about the implications for the provincial press. During recent years a large number of local and regional newspapers have closed. They have been under threat from the free newspapers and other sources going for the limited budgets of advertisers. The local and provincial press are dependent on advertising from people who cannot claim back the VAT—those advertising births, marriages, personal classified advertisements and so on. That is a substantial part of their advertising.
If the Government continue in this direction, many more local papers will be under threat. While I often differ with what they print, I believe that they have a right to print it. It would be a bad day if more of them closed. I accept that the free press has a part to play, but it is no substitute for a weekly or daily regional newspaper. I do not dispute its right to exist, but the amount of editorial material, when compared with a traditional paper, is small. Many free newspapers have few reporters and depend almost entirely on advertising revenue. The local press also depend on that advertising revenue to survive. Any pressure put on them will cause more of them to close, which would be a bad day for local news.
I hope that this is not the foot in the door to putting VAT on to newspaper cover costs and books. As I have been serving on the Transport Bill Committee, I have not heard the earlier debates, so I do not know if the Minister has already answered my point. I hope that the Government will assure us that they will not move in that direction and that, even at this late stage, they will have second thoughts about imposing VAT on newspaper advertising.

Mr. Mark Fisher: I apologise for not being present for all the clause stand part debate.
My hon. Friend the Member for Burnley (Mr. Pike) said that the free press was no substitute for a professional provincial press. In some areas free newspapers have become a valuable addition to journalism in Britain, but they are threatened in a dangerous way by the clause.
As my hon. Friend said, the quality of the free press is variable. Some rely almost entirely on advertisements and make no attempt at journalism. What little copy they carry is syndicated. But some, such as the North Staffordshire News and Advertiser, make a distinct effort at journalism. Indeed, because of their limited journalistic resources, they have found a mode of journalism that matches those resources. They cannot cover the whole range of local activities, so adopt a more campaigning role, and they have added a positive and distinct element to journalism.
As my hon. Friend the Member for Sedgefield (Mr. Blair) said, there are now 700 of them and they are a force to be reckoned with. By threatening them, the clause is threatening an embryo movement in journalism which may become insignificant and unimportant, but which could, as I hope will, develop into an interesting part of the media, particularly in the local and provincial sphere.
The clause affects them in a number of ways, some of which the Minister may not totally have taken into account. He may not have appreciated that the whole revenue of free newspapers now bears VAT, a move that is more radical than that which we were discussing in previous amendments in connection with VAT on charities.
This will add considerably to the costs of these newspapers. For example, a local newspaper in north Staffordshire, I was informed last week, has had to employ an extra member of staff simply to deal with the more complex type of invoicing. For a small business run with few staff, that has been a considerable extra cost.
About a third of that newspaper's advertising is placed by clients who will not be able to reclaim VAT. The paper carries 12 pages of advertising, four of which, it is estimated, are from small traders such as people in insurance and finance and from charities. The revenue of such newspapers is affected in an even more radical way than I suspect the Chancellor realised when he introduced the measure.
As I pointed out, it is to be hoped that the free press becomes a significant and valuable addition to journalism. Ironically, this VAT proposal will not only squeeze them as small businesses—and the Government claim that they see small firms as providing the main source of employment in the coming years—but will squeeze their editoral quality. If their revenue is squeezed, their attempts to become serious, albeit limited, journalistic vehicles will be equally restricted.
The Government will force them back into a laager of advertising and syndication, with no attempt being made at even the present embryonic movement into local campaigning journalism which could make them valuable. Instead, the Government will condemn them to being rather limited advertising rags. That cannot be what the Government intend. It would not be to the benefit of local communities, and in strangling these small areas of innovative journalism, the Government will also be strangling some of the small businesses that they claim to want to help.

Mr. Blair: We have already debated the effect on consumers of the imposition of VAT on newspaper advertisements, and it is right that we should also consider the effect on the newspaper industry.
Most of the relevant points have been extremely well made by my hon. Friends the Members for Clackmannan (Mr. O'Neill). for Paisley, South (Mr. Buchan), for Great Grimsby (Mr. Mitchell), for Burnley (Mr. Pike) and for Stoke-on-Trent, Central (Mr. Fisher). The House is, therefore, in the fortunate position that it will not have to listen to me for long. [HON. MEMBERS: "Shame."] I am always open to persuasion.
The Minister of State accepted the estimate of a 3 per cent. drop in revenue resulting from the imposition of VAT on newspaper advertisements. That is a high figure, considering the margins on which some papers operate.
I concur with what my hon. Friend the Member for Stoke-on-Trent, Central said about free newspapers. It is often not realised how many people are employed by those papers. It is estimated that there could be as many as 13,800 full-time employees and almost 96,000 part-time employees. All the revenue comes from advertising. The growth in the number of free newspapers has been enormous and it is clear that it will continue if it is allowed to do so. The employment effects are as important as anything else.
We have said throughout our debates that the Minister should be particular in his estimate of the employment effects of introducing VAT on newspaper advertisements. The Government's record in predicting the employment effects of VAT is extremely poor. Last year, VAT was imposed on takeaway foods and we were assured by the Chief Secretary to the Treasury that the employment effects of that would be minimal. However, the Hot Takeaway Action Group, which has carried out a large survey, estimates the effects to have been devastating and it is suggested that 20,000 people have been made redundant as a result of that imposition of VAT.
I hope that the Minister of State will give us specific predictions of the employment effects of the imposition of VAT on newspaper advertisements. We fear that it will drive many newspapers at the margin to make a considerable number of people redundant and that it may even put some papers out of business.

Mr. Hayhoe: The hon. Members for Paisley, South (Mr. Buchan) and for Burnley (Mr. Pike) referred to press speculation that the Government might put VAT on newspapers and books. I assure both hon. Members that that was speculation and that the Government had no hand in it.
The hon. Member for Burnley asked whether the imposition of VAT on press and magazine advertising is an hors d'oeuvre to VAT being imposed more widely on the printed word. I refer him to what my right hon. Friend the Chancellor said in his Budget speech. He announced that while the Government accepted that this was an area in which European Community law had to be reckoned with, and where we were bound by treaty obligations, he did not intend to make any further extensions of the VAT base during the lifetime of this Parliament. That is an absolute assurance along the lines for which the hon. Gentleman asked.
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The hon. Member for Paisley, South referred to advertising for the arts—concerts, theatre and the like—

and was concerned that the imposition of VAT on advertising would be an additional burden upon tie arts which would have adverse effects. In fact, theatres, concert organisations and the like are registered for VAT. If they have a turnover in the year of over £19,500, they are registered and charged VAT on their ticket sales and, therefore, can reclaim the VAT that they pay on their press advertising as they now reclaim other VAT charges that they have to meet. In those circumstances, I think the generality must be that the worries of the hon. Gentleman will not be reflected in practice. Indeed, I know of no representations from the arts world on this issue, because these organisations are well aware that they can reclaim any additional input tax that they have to pay on their advertisements.
The hon. Gentleman made some general comments about Government support for the arts. This is not the occasion to reply to them, and I do not intend to do so. However, for the record, I do not accept his critical comments.
The hon. Member for Clackmannan (Mr. O'Neill) referred to the effect of VAT on advertisements in the press and magazines and was concerned about whether this might result in some job losses. As he knows, and, indeed, referred to, we had been talking along these lines on earlier amendments. I do not intend to repeat what I said then. The estimates that I have indicate that the job effect will be very small.
What I can be certain of, however, is that if job losses occur in the press and magazines, the VAT charge on advertisements will be blamed for everything. Last year, when VAT was imposed on hot takeaway food and that coincided with a record rise in the price of potatoes, fish and vegetable oil, it was never suggested that the difficulties which the industry encountered had any thing to do with the price of raw materials—it was all blamed on VAT. Anybody who is involved in tax affairs of any kind knows that one attracts that kind of comment.
I met representatives of the Hot Takeaway Action Group recently and asked them whether, on the basis of group's latest surveys, they could differentiate between the various effects. The surveys were not scientifically carried out, as the representatives acknowledged. The surveys were limited, and it was perhaps a somewhat partial sample that was taken. Therefore, even the representatives of the group do not contend that the surveys give a proper view over the whole of the hot takeaway food area, and they had to acknowledge—and did so quite freely and openly—that they could not differentiate between the various effects.
As to Government forecasts—and reference was made to my right hon. and learned Friend the Chief Secretary—the first time that we shall have evidence is later this year when we receive the family expenditure survey data for 1984, which will give us a pretty clear indication of spending on hot takeaway food. We shall have to wait until later this year to have some scientifically produced estimates in the expenditure survey, after which we will be better placed to make a judgment.
To return to the question of jobs in the printing industry generally, if management in the printing industry were offered a choice between a much more realistic and co-operative attitude by the trade unions that operate in that industry and the imposition of VAT on its press advertising, I am sure which it would choose.
I share the concern that has been expressed about the loss of printing in the country and the fact that so much printing has moved abroad over a long period of years. I am delighted that some of it is coming back to the country. That is because management is now being allowed better to manage and use the new technology. I welcome the helpful and constructive comments that have been made on this matter. If those attitudes are reflected more widely I hope that British printing, which had a fine reputation in the past, will be able to recover much of the ground that has been lost.
The hon. Member for Great Grimsby (Mr. Mitchell) referred to the VAT position of pirate radio. As he recognised, that is going a little wide of the clause. It may be out of the same pool, but so are a great many other things. The hon. Gentleman thought that he would be lucky to get an answer from me today, and he was right. Nevertheless, I shall look into the matter and write to him about it.
I commend the clause to the Committee.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.

Clause 35

PERSONAL RELIEFS

Dr. Oonagh McDonald: I beg to move amendment No. 7, in page 34, line 2, leave out '£4,255' and insert '£4,475'.

The Second Deputy Chairman of Ways and Means (Sir Paul Dean): With this it will be convenient to take amendment No. 8, in page 34, line 3, leave out '£2,690' and insert '£2,830'.

Dr. McDonald: The purpose of the amendment becomes clear when one considers the careful way in which the Chancellor presented his statement about age allowances. He said in his Budget statement:
I propose to increase the age allowances this year by the same cash amount as the corresponding basic allowances. Thus the single age allowance will rise by £200 and the married age allowance will go up by £300."—[Official Report, 19 March 1985; Vol. 75. c. 801.]
On the face of it, that seemed perfectly fair. In fact, however, it was a continuation of what the Government did last year when they widened the gap between the age allowances and the ordinary personal allowances. Until then the gap had never been more than 1 per cent. but it suddenly widened to 7 per cent., working against the over-65s. This was because last year the Government more than indexed the ordinary allowances but merely indexed the age allowances. As a result. 2·4 million pensioners over the age of 65 had to pay an extra £130 million in income tax, although the Government looked after the better off pensioners—those with investment income—through the abolition of the investment income surcharge.
Having read carefully virtually every word of the Minister's response to a similar Opposition amendment last year, I find that the Government produced no good reason whatever for their treatment of pensioners. There is absolutely no justification for making a distinction between increases in personal allowances to pensioners over the age of 65 and increases in ordinary personal allowances—unless there is an implicit justification which the Government would prefer not to state out loud. As the Government choose to believe that unemployment is due at least partly to the unemployment trap, they may regard it as more important to raise the allowances of people in work to ensure that they continue to work and do not chicken out and take unemployment benefit or social security benefit instead. The consequence of following that argument through is that pensioners' tax allowances do not matter much and that it is sufficient to index them. If one failed to do that, pensions would be cut, in so far as they are subject to tax.
This year the Chancellor of the Exchequer tried to cover the Government's tracks by announcing the same cash amount, yet on examination that is not as fair as it seems. This year's Budget increases the single age allowance by 8 per cent., and the married age allowance by 7·6 per cent. Both are higher than the present rate of inflation, but who knows what will happen to inflation by the end of the financial year?
The real point of comparison is between the single person's allowance or the married woman's allowance, which increases by 10 per cent., and the married man's allowance which increases by 9·5 per cent. The

Government have raised the age allowances by a little more than the present rate of inflation but not as much as the ordinary allowances. The reason for that is not clear, unless it is, as I suggested earlier, that pensioners do not matter much because they do not affect the unemployment figures. Perhaps the Chief Secretary can suggest a reason for distinguishing between the age allowances in that way—a distinction which was introduced last year and which continues this year, although not to the same extent.
We are suggesting higher amounts than the Government have done in order to go some way towards rectifying the damage done to pensioners in last year's Finance Act. Our amendment seeks to raise the single person's allowance to £2,830 and the married age allowance to £4,475. I am sure that the Chief Secretary will have done his sums carefully, but, before he produces them, I can tell the House that the cost of our proposal is £57 for a married age allowance and £45 for a single age allowance. Those figures are based on the tax ready reckoner statement in the autumn statement 1984. Those are modest costs. In the clause that we shall debate tomorrow, the costs for a full year will be £155 million, which will go to the better off. Today we have made a modest proposal which costs about £1 million, and which will do a little to help pensioners and to make up for last year's bad treatment.
We have a substantial number of pensioners in mind. In the last tax year, 1·25 million single pensioners over the age of 65 and 1·30 million married couples, of whom one of the partners was over 65, paid tax. Forty per cent. of pensioners are affected by taxation and, therefore, our changes would affect a large number of them. We want the Government to be more generous to them than they are disposed to be.
Last year the Government introduced the gap between the two amounts of allowance, and this year they have widened the gap between the age allowances and the ordinary tax allowances. Having introduced this sort of discrimination last year, the Government—although it does not appear so until one begins to examine the implications of the Chancellor of the Exchequer's statement—have widened the gap between pensioners and the rest, and one wonders why. No explanation has been given and we are dying to hear the Chief Secretary's justification for it. Perhaps it is all part of a general attitude which the Government seem to have been developing towards pensioners ever since they came into office.
I have mentioned changes, not directly related to taxation, which show what the Government's attitude to pensioners seems to be. For example, the Government changed the basis on which the state pension was assessed, so that it was no longer related to earnings. If that earnings rule had not been changed, a married couple would be getting £62 a week instead of the current £57 a week. A single pensioner would be getting £38·90 a week instead of the current £35·80. So the Government have already attacked pensioners once by changing the basis on which the state pension increases should be assessed each year.
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Then there is the threat of the abolition of the state earnings-related pension scheme. We know that the Cabinet has yet to come to a decision about that, and I can understand why there is much in-fighting going on in the Cabinet. After all, on the 1983 figures, at least a million pensioners will be affected. If the Government decided to


abolish the SERP scheme straight away, so that nobody benefited from the scheme any more, a million pensioners would be affected and they would lose on average about £2.30 a week.
Therefore, from the Government's past behaviour—the tax changes what were made last year, which are continued in this year's Budget, and all the talk about the abolition of the SERP scheme—we can see that the group about whom the Government care least are the pensioners. The Government would do well to remember that they are large in number, and that many can ill afford the kind of damage that the Government seem to be determined to do to their income.
When we looked at the kinds of thing that the Government might do, on the basis of the estimates of the development of the economy, the level of PSBR and so on that the Government provided, we could see that with better planning and with better intentions the Government could afford to raise the single person's pension by £5 a week and the married person's pension by £8 a week. We have yet to hear what proposals the Government have for pensions this year.
From the Budget statement and the Finance Bill, we can see that the Government plainly do not care about the lot of the pensioners and are determined to enlarge the distinctions between the tax treatment of pensioners and the tax treatment of the rest of the Community. The Finance Bill is designed to continue the damage that the Government started to do to the incomes of pensioners last year. That is why we are seeking to amend the Bill in this way.

Mr. Austin Mitchell: I support my hon. Friend the Member for Thurrock (Dr. McDonald) in the points that she so tellingly made. Her speech placed its main emphasis—as it should, coming from the Opposition—on proper provision for the aged. The amendment proposes to increase the age allowance to compensate for the Chancellor of the Exchequer's vicious treatment of pensioners last year. While, as my hon. Friend said, the married man's allowance has increased from 1979 up to this year by 125 per cent., and the single person's allowance has increased by 124 per cent., the single person's age allowance has increased by only 107 per cent. and the married person's by only 105 per cent. That is not good enough. Special problems and responsibilities fall upon the aged and it has always been considered right that the tax system should provide special help through tax allowances for them. That is provision which we back strongly. We are concerned about the Government's niggardly cheese-paring attitude, which hits those most vulnerable by failing to increase the allowances in the way that is proposed in the amendment.
The Government's attitude prompts the question, "What do the Government have against the aged?" They have ended the dual link that the Labour Government established between pensions, prices and wages, whichever increased the more, and now we have a bubbling, seething morass of rumours about the treatment of the earnings-related element in the pension. However, the Government never have the courage to implement their prejudices and they will draw back ultimately. It should be recognised that the rumours are causing much uncertainty among the elderly and those who are

approaching retirement age. We remember the rumours which the Chancellor of the Exchequer eventually had to scotch in the Budget statement about the Government's treatment of the pension funds. Against this background, it is only to be expected that we should ask ourselves what the Government have against the pensioners.
The explanation that enters my head is that the deliberate campaign against pensioners is one way of distracting attention from the fact that on 15 October the Prime Minister will become a pensioner. We shall have then the spectacle of a grey-haired couple in the evening of their lives—a little out of touch with reality but only by 100 years—who have become gentler, all their passion spent. They have nothing else to do apart from wrecking the national economy and plaguing those less well off than themselves. That will be characteristic of their policy up the retirement, which is designed to distract attention from the historic event of pension day for the Prime Minister. That is why the Government have embarked on a deliberate campaign against pensioners.
The Labour party sees it as its responsibility when in office to reverse the Government's policies. The Labour party is the party which provides for pensioners. It has always done so and it will continue to do so. When it takes office it will reverse what the Government have been doing by cheese-paring benefits and tax allowances to which pensioners are entitled as of right in according with social justice and human decency, which are concepts foreign to the Government but sacred to the Opposition.

The Chief Secretary to the Treasury (Mr. Peter Rees): We have had a brief but interesting debate, which is to a degree a continuation of our debates last year on this subject. I make no complaint about that. It is right that we should return to these important issues. Perhaps the hon. Members for Thurrock (Dr. McDonald) and for Great Grimsby (Mr. Mitchell) drew the wrong conclusions from the facts. They may feel on reflection that some of their remarks were rather highly charged, especially when we go back a little in time.
The hon. Member for Thurrock explained clearly the basis of the amendment. It seeks to index on the basis of the amendment which was introduced on 1 May last year by the hon. Member for Birmingham, Perry Barr (Mr. Rooker). Last year the Government proposed full price protection for the age allowance for the elderly. This year we propose full price protection and more. We are saying that there should be some cash in addition, which is £300 for the married age allowance and £200 for the single age allowance. In cash terms, that will keep them level this year with the ordinary basic allowance but, I concede, not quite in percentage terms.
The hon. Member for Thurrock asked about the theme of the Budget and quoted, not a little selectively, from the speech of my right hon. Friend the Chancellor, who said that the emphasis of the Budget was on jobs and people of working age. That does not mean that we intend to discriminate against other groups. That point was made last year, when my hon. Friend the Minister of State said that positive discrimination in favour of people of working age did not imply discrimination against any other groups.
Lest such a conclusion be drawn, we should examine the facts. Since 1978–79 there has been a £2,180 increase in the married age allowance, compared with a £1,920 increase in the basic married man's allowance. The single age allowance has increased by £1,390, compared with a


£1,220 increase in the basic one. I hope that the Committee will not think that that shows discrimination against the elderly. The married age allowance is at its highest point since the war and the single age allowance is at its highest since 1974. That does not show sustained discrimination by the Government against the elderly.
Clause 35 should take 60 per cent. of the over-65s out of charge for tax. I know that the hon. Member for Birmingham Hodge Hill (Mr. Davis) deprecates my giving the figures of people taken out of charge for tax. I know too, that he is a keen student of these matters, but I shall not take up what he said on Second Reading. Clause 35 should ensure that 260,000 of our elderly compatriots are taken out of charge for tax. I do not think that that indicates discrimination or that we have no care for that group.

Mr. Terry Davis: The right hon. and learned Gentleman and I share an interest in these matters. How many of those 260,000 people were taken out of tax last year by the increase in age allowance and are therefore being double counted?

Mr. Rees: I cannot give a precise figure. If it can be ascertained during the debate, I shall give the hon. Gentleman the answer. If not, I shall write to him. I am sure that he will add it to his store of knowledge on this important, if slightly arcane, subject.
There is no obvious reason why the elderly should retain a constant percentage premium over the younger taxpayer. Perhaps I might draw the attention of the hon. Member for Thurrock to the fact that there was no constant figure under Labour. I could take her through successive years to show that the proportion that the age allowance bore to the basic allowance was reduced steadily under Labour. Having winced under the hon. Lady's harsh criticisms about clause 35, I was reassured to find that, in 1976, the basic and age allowances were increased by the same cash sum. All of the strictures which the hon. Lady has advanced against us might, if well founded, be advanced against the Labour Government. I am sure that that point must have escaped her attention, otherwise she would not have developed that theme.

Mr. Austin Mitchell: Surely the gap was never widened to this extent. The ratio was always more closely maintained under that Government. Even if there was a slight widening, it was never a widening of this degree. The difference between an increase of 107 per cent. in the single person's age allowance and 125 per cent. in the married man's allowance since 1979 is quite considerable.

Mr. Rees: I know that the hon. Gentleman has great enthusiasm for these matters, but let us look at the problem in its true context. My hon. Friend the Member for Braintree (Mr. Newton) moved a similar amendment to that moved by the hon. Member for Thurrock (Dr. McDonald) on that occasion. It is curious that those themes run through our debates. He said that there was no clear water between the basic old-age pension and the age allowance. There is considerable clear water on this occasion—about £23 a week for the married man's age allowance and £15 a week for the single man's age allowance. Further, on that occasion, when the Labour Government were in power, the basic rate was 35 per cent., and now it is 30 per cent. Therefore, if the hon. Gentleman reflects closely, he will see that we have a

slightly better record than the previous Administration. However, I do not want to enter into a competitive battle on that point. I only want what we have proposed to be viewed in its true context.
I hope that when Committee members reflect on the extent to which we are proposing that the married and single age allowance should be put up, on the number who will be taken out of charge for tax altogether, and on the fact that this is the highest level for an elderly married man since the war, and for an elderly single person since 1973–74, they will see that all the strictures that have been advanced by the hon. Members for Thurrock and for Great Grimsby are not well founded. I know that the hon. Lady is fair-minded. I hope that now she has had a chance to reflect on my remarks, she will not feel disposed to push her amendment to a Division.

Dr. McDonald: As I listened to what the Chief Secretary had to say, and as he referred back to the Minister of State's speech last year, I found that there was still no answer. To give different percentage increases for the age allowance as opposed to the ordinary allowance is unequal treatment. Such inequality has to be justified. No justification whatsoever has emerged from what the right hon. and learned Gentleman said.
The differences between the age and ordinary allowances have been moving on apace under the Government, particularly since their re-election in 1983. For example, in 1983–84, the figure for the single age allowance as a percentage of the single person's allowance was 132 per cent. As proposed in the 1985 Budget, the figure is 122 per cent. That is a 10 per cent. drop in two years, which is pretty much of a change, and at a pretty fast rate. The married person's allowance is slightly bigger than that. If we take the married age allowance as a percentage of the married person's allowance, in 1983–84, it was 134 per cent. In this Budget, it will be 123 per cent. That enormous change is being made in the value of the age allowance, although it has been raised a little bit above the rate of inflation in the current financial year.
That is unequal treatment. It is a steady and fast rate of change. The Chief Secretary has still not provided any justification for that whatsoever, although the Government declare that they are particularly committed to reducing the burden of taxation, a matter that we can discuss further on clause stand part. Frankly, the right hon. and learned Gentleman has not justified what has been done in this year's Budget. It is still unequal treatment, and will leave many pensioners worse off than they might have been if the Government had chosen to treat ordinary taxpayers and pensioner taxpayers in the same way.

Amendment negatived.

Question proposed, That the clause stand part of the Bill.

Dr. McDonald: In clause 35, the Government appear to be generous in the way in which they have raised the married persons' and single allowances above the rate of inflation—10 per cent. and 9·5 per cent. respectively. The Chief Secretary has said that these allowances now stand at the highest point since world war 2. At first sight it seems as though the Government are being very generous and fair in the tax treatment that they have meted out. However, once again, everything is not as it appears.
For example, up to the Budget, and even in the course of the Budget speech, Ministers made great play of the


point that raising the allowances would deal with the poverty and unemployment traps, and that this is the best and most efficient way of treating this problem, and a way designed to help those on average and below average earnings. The Government continue to put up that case, in spite of the fact that it has come under fire and justified criticism.
I shall focus not on the unemployment trap but on the poverty trap, because I want to examine the burden of taxation and how it is distributed. Last December, the latest figures available gave the figure of 270,000 families caught in the poverty trap. That is a five-fold increase since 1979. The various efforts that the Government claim to have made to relieve the poverty trap have made it worse.
Some of the families caught in the poverty trap pay marginal tax rates of between 75 and 100 per cent., and some—a small proportion—pay marginal tax rates of over 100 per cent. Recently, when the Daily Mail, with its usual factual basis, claimed that the Labour party might bring in tax changes that would impose marginal tax rates of 98 per cent. on certain people, there was a great outcry from the Conservative Benches. However, I hardly ever hear any Tory Member complaining about the number of families caught in the poverty trap and few voices complaining about the numbers paying marginal tax rates of 75 per cent. and above. They seem only to begin complaining when those who might face high marginal tax rates because of changes are the very rich. The complaints do not come when we deal with the 270,000 families who, in the nature of the case, because they are able to claim family income supplement, are extremely poor. About such cases there is hardly a peep from the Tory Benches about the poverty trap. Nor is there a serious attempt to get people out of the poverty trap.
Indeed, with the national insurance contribution changes introduced in the Budget, the Government have casually introduced another three poverty traps, although admittedly they do not give rise to marginal tax rates such as the ones that I have just mentioned. However, they mean that many people will pay more tax, or they encourage employers to hold down wages so that their employees are not caught in the poverty trap through increases in taxation because their wages are increased from, say, £55 to £58 a week. The Government have done nothing in this Budget, as in previous Budgets, to reduce the number of families caught in such traps, nor have they seriously considered the problem.
The Government claim that they have assisted people on average and below average earnings, and that they have reduced the amount of tax and national insurance contributions that they must pay. Yet if we take that as a proportion of earnings in 1985–86 as compared with 1978–79, we discover that those on half average earnings, two thirds of average earnings or just on average earnings—I am talking about married couples with part-time working spouses, or married couples with two children and part-time working spouses—for all the Government's alleged efforts, are paying roughly the same tax as a proportion of their earnings as they paid in 1978–79. For all the steam, noise and effort that the Government have allegedly engaged in, the tax changes will make little difference to their tax burden.
In contrast, high-paid households—those on five times average earnings—have enjoyed an average reduction in their tax bills of 14 per cent., while those on 10 time average earnings have enjoyed an increase of 22 per cent. compared with 1978–79.
I listened with great interest to the speech of the Financial Secretary to the Treasury on Monday 29 April, and I came to the conclusion that he either had little grasp of the statistics—I am sure that that is completely unfair—or that he was trying to pull a fast one. He said that the Government were more concerned with the genuine quality of life than were the Opposition, and then went on to say that what really mattered was the increase in real take-home pay, or real wealth, under this Government compared with under the Labour Government. Of course, he is correct to say that take-home pay has been increased for some groups, because gross earnings have been increasing at a much faster rate under this Government—I understand to their dismay—than they did under the Labour Government.
I say that the hon. Gentleman was trying to pull a fast one because he suggested that we should focus only on the real take-home pay of those groups, instead of on the Budget and the Finance Bill, which are designed to deal with the distribution of the tax burden of those income groups. To suggest that all that matters is that people's real take-home pay is increasing—the Opposition certainly do not object to that—is not the point. The distribution of the tax burden is the point. To say that real take-home pay has increased for this, that or the other group is neither here nor there. The Financial Secretary gave the game away by comparing the increasess in real take-home pay for those on twice or five times male average earnings under the Conservative Government, with the increases under the Labour Government. According to a survey of personal earnings in 1982–83, we are talking about 44,000 people earning five times average earnings and 1·5 million people earning twice average earnings.
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The Financial Secretary referred to enormous increases—14 per cent. in the last five or six years for those on twice male average earnings and 28 per cent. under the Conservatives for those on five times male average earnings—for a tiny proportion of the 22 million incomes.

The Financial Secretary to the Treasury (Mr. John Moore): Knowing that the hon. Lady is as fair as she is statistically accurate, I am sure that she will remind the Committee that I gave the precise comparisons for average earnings, and half average earnings as well as for twice and five times average earnings. In all those cases, including half average earnings, those people have done better.

Dr. McDonald: Exactly. I made that point. I said that the Financial Secretary was leading us up the garden path a little by trying to make us focus on the notion that what mattered was the increase in real take-home pay. Certainly there have been increases for all the income groups to which the hon. Gentleman referred. I do not dispute the figures, but they are not the point. The point is that the increases have been unequally distributed under this Government far more than under the last Labour Government.
A Finance Bill is concerned with the distribution of the tax burden, not simply with recording the increases in real


take-home pay for various groups. It is insufficient to say of the increase in real take-home pay for families on low incomes, "They are fine; they are definitely better off." The real take-home pay to which the Financial Secretary referred excluded VAT and other charges which hit such families harder than families on average and above average incomes. Even the net tax cuts of £1·73 for a married couple and £1·15 for a single person will mean that those in receipt of below average earnings will receive less in their wage packets or salary cheques. In fact, the benefits have already started to disappear because prescription and water charges have increased and excise duties and VAT on various items have been imposed or increased. That hits low-income families much harder than families on twice or five times average earnings.
One could say that the Financial Secretary—I am sure that it was unintentional—was also trying to pull the wool over our eyes by merely referring to the increase in real take-home pay. The hon. Gentleman knows that that excludes VAT and the other duties to which I have referred. The Government have hit the living standards of the low paid far harder than they have hit those of other people.
National insurance contributions are not part of the Finance Bill, but they are part of the Budget and therefore I shall deal with them. We are now all coming to the view that tax and national insurance contributions must be taken together.
The much vaunted reductions in national insurance contributions do not help much. A wages council worker earning £69·85 a week—the rate for bar staff—and receiving the full benefit of the reduced 7 per cent. rate will pay 18·8 per cent. of his earnings in tax and national insurance as a single person after October 1985 compared with 17·4 per cent. of the equivalent wage in 1978–79. Some people do not benefit from any of the changes. I am indebted to the Low Pay Unit for that example. It illustrates once again that the changes do little to help the low paid, that the rich continue to benefit from this kind of Budget, and that there has been no change in the Government's policy.
Taxes have risen in real terms by £26 billion, at 1984–85 prices, between 1978–79 and 1985–86. The only people to have benefited by about £3 billion a year are those with well above average earnings. When we first consider the clause, from the point of view of the Opposition and the public, it seems that the Government are being generous. Allowances are being raised well above the rate of inflation, and they are accompanied by changes in the national insurance contributions. It seems that those with below average earnings will benefit. A closer examination shows that once again nothing has been done to relieve the poverty trap. Those on below average earnings are still paying about the same amount of tax and national insurance contributions as they paid in the last year of the Labour Government, and yet the Government continue to condemn the Labour Government for grossly increasing the tax burden.
Before the Government took office, they said that they would cut taxes and everyone would benefit. That is partly why people voted for them in 1979. Since then, people have begun to understand that when the Government talk about tax cuts that means tax cuts not for everyone, but only if one belongs to that small minority whose wages are double or more than double average male earnings. That is the focus of the Government's attention. They might

choose to justify it by saying that if they give incentives to that group of people it will revitalise the economy because they are the innovators who will create jobs. The Government have been up to that kind of trick for the past six years. We are still waiting for those rich innovators to invest, innovate and create more jobs. That justification has gone straight out of the window.
The Government have increased the tax burden. Whatever the Financial Secretary chose to say last week, the tax burden has been even more unfairly distributed than it was before. The only beneficiaries are the better off. The low paid are as badly off as ever, despite the apparent initial glories of the clause. When we look at it, it fades away like fairies' gold. It is nothing in the hands of the low paid.

Mr. Austin Mitchell: My hon. Friend the Member for Thurrock (Dr. McDonald) made a telling and powerful argument against the Government on social priorities. As she said, the whole of the Government's strategy was based on the trickle-down theory of economics—if more money is given to the wealthy it trickles down to the poor. As Galbraith put it, if we feed more hay to the horse it trickles down to the road to be eaten by the birds, so the more hay we feed to the horse the better the birds are fed. All that has trickled down from this Government is excuses, distorted statistics and sermons from the Prime Minister. The benefits that have been showered on the wealthy—to the tune of £3,000 million every year to the top 5 per cent. of income earners—have not stimulated economic activity or trickled down to the poor. They have not provided the dynamism that was originally envisaged.
It is interesting that tonight we are debating certain clauses because of a conflict of pressures. We want to debate those clauses to which we take the greatest exception; the Government want to debate clauses on which they wish to congratulate themselves. This clause is one of those on which the Government wish to pat themselves on the back. It is a difficult anatomical feat, but not as difficult as some of the other anatomical feats performed by Government, especially under this Prime Minister. Yet that is hardly reasonable given the social priorities embodied in the proposal on personal allowances. There is an argument whether this is the best use of the limited amount of money that the Government felt able to give away in the Budget. I do not regard an increase in personal allowances as the best use, but it is a personal choice. This Government have placed the burdens of the depression that they have created on the shoulders of those least able to bear them—the poor, the aged and the unemployed. It is about time that they were recompensed for what the Government have done to them, as victims of Thatcherism, by some increase through the tax system so that money is channelled directly to them.
I believe that that is best done through child benefit, which has not been increased to the same degree as allowances. It is likely to increase only in line with inflation. I believe that child benefit is the most effective way of channelling money to those who most need it—the poor and those with large families. That should be the priority. If there was a massive increase in that benefit, it could be combined with a tax of the benefit. There should be a massive increase to allow that money to be used where it is most effective. It would deal more effectively with


poverty and the real social problems that the Government have created than the increases in personal allowances. Invevitably such increases give less to the low paid and the less well off. That is implicit in the system. But the Government have been giving more to the better off all along.
Under the Budget a Cabinet Minister earning £827 a week—one wonders why they are paid so much given the extent of the devastation that they have caused in the economy—will receive a weekly reduction in tax and national insurance of £8·87. Congratulations to Cabinet Ministers. The mass of the people, and certainly the less well off, have peanuts and penury.
The very myth that taxes are being reduced is punctured by the telling figures provided in answer to parliamentary questions by the Low Pay Unit. Anyone on a half or two thirds of average earnings, or even on average earnings, is still paying a higher proportion of his income in direct tax and national insurance than he paid in 1978–79. I want to quote the figures to puncture the myth once and for all. After five years of saying that they are reducing the tax burden, the person on average earnings is still paying a higher proportion of his income in direct taxes than he paid in 1978–79.
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In 1978–79, a single person on average earnings paid 31·7 per cent. of income in direct taxes. In 1985–86 the percentage is 32·5. A married couple on half average earnings in 1978–79 paid 16·4 per cent. of income in direct taxes. In 1985–86, they are paying 18·7 per cent., an increase of 14 per cent. The social priorities of the Government involve taking from the poor to give to the rich, sanctifying it with cant and rhetoric about stimulating an economy which visibly they have depressed and ruined. A married couple with two children on two thirds of average earnings in 1978–79 paid 12 per cent. of their income in direct taxes, whereas in 1985–86 they are paying 13·2 per cent. in direct taxes.
Those social priorities, which are absolutely wrong, which the clause does nothing to alleviate and which characterise the Government, have brought the economy to the present pass of a country stale in decline, larded with the vainglorious platitudes of a Prime Minister of a Government who are viciously placing the sacrifices of that decline on the poor and those least able to carry the burden. Those are the priorities represented by the Government.

Mr. Peter Rees: We have had two wide-ranging contributions from the hon. Members for Thurrock (Dr. McDonald) and for Great Grimsby (Mr. Mitchell). They were long on rhetoric and short on facts. Indeed, at times I wondered whether we had been taking part in the same debates and had been looking at the same tax system. However, as the evenings go by in Committee Room 10 upstairs, our views may come together and we may realise that we are focused on the same problems.
The hon. Member for Great Grimsby, with his usual panache——

Mr. Terry Davis: Now answer the debate.

Mr. Rees: That was intended as a compliment. The hon. Member for Birmingham, Hodge Hill (Mr. Davis) should not be so sensitive. He knows that I am prone to

distribute my compliments even-handedly between both sides of the Committee. I said that Labour Members had made engaging contributions, but I wondered whether the facts justified their remarks and whether they really had been considering what had happened to the tax system during the period between 1974 and 1979 and between 1979 and the present day.
This clause was chosen for debate. Indeed, it would have been odd had we not chosen to debate on the Floor one of the principal income tax provisions. We should have been subject to criticism by the main mass of hon. Members who will not be privileged to sit upstairs in Committee Room 10 and maybe by the world outside——

Mr. Terry Davis: There are not many sitting here.

Mr. Rees: I am sure that the hon. Gentleman would prefer not to open up that point. I was not proposing to do so, but if he would like a record kept hour by hour. day by day, of those who attend our debates, I am sure that the Clerks would oblige.
I was pointing out that it was right that during our debates on the Floor, when any hon. Member is free to contribute, at least one of the income tax provisions should have been singled out for debate.
I hoped that we might find common ground. I hoped that the hon. Member for Thurrock, with her sharp and informed view, and the hon. Member for Great Grimsby would recognise that the Government have been concentrating considerable resources on raising the basic personal allowances. The advantages of that are plain.
I am sure that the hon. Lady will be reassured to hear that my right hon. Friend the Chancellor of the Exchequer will be devoting £1·5 billion of resources to raising thresholds in 1985–86. In a full year, the cost will be £1·87 billion—a fairly considerable diversion of resources to what I thought were the common objectives of taking as many as possible of our fellow countrymen out of tax and concentrating particularly on the less well-off sectors.
The Opposition say that child benefits have advantages, but they have disadvantages, too. First, they do nothing for the elderly. Very few elderly couples are likely to be able to claim child benefit. We had an interesting debate about concentrating more resources on the elderly, but the Opposition now advance a contrary case and say that we should have concentrated resources on child benefit and not on basic allowances. Child benefits do nothing for single people or for the childless.
We could have an interesting debate on how to tackle these various problems, but I hope that the Committee will recognise the Government's sincerity and determination to concentrate resources where it is felt that the need is greatest.

Mr. Austin Mitchell: On the better off.

Mr. Rees: The hon. Gentleman makes that spurious point and I concede that the rates of tax that we inherited—98 per cent. on investment income and 83 per cent. on earned income—have been considerably alleviated. If one has a steeply progressive system, to the point of lunacy and near confiscation, and one dismantles the structure, considerable advantages will go to those who have been paying confiscatory rates.
However, if one looks fairly and dispassionately at what has happened, one sees that considerable advantages


have been concentrated at the other end. I should like the Committee to concentrate on take-home real pay. The Opposition make the extraordinary proposition that that is not what counts. In my excursions round the country I have found that that is precisely what agitates most of our fellow countrymen.
The hon. Member for Great Grimsby singled out a husband on half national earnings, with a wife and two children. The hon. Member looks alarmed, as well he might, but perhaps he will agree that he was carried away by his own rhetoric and ignored what has really happened. Under the Labour Government, the take-home income of that family increased by 4·3 per cent. Let us consider that same family in the period since the 1979 election until this year. Its net income has increased by 12 per cent. By any test that I can formulate, that family has been better off under a Conservative Government than it has been under the Government that the hon. Gentleman supported.
Let us take the same family of a married couple with two children on average earnings and consider how its net income improved under the last Labour Government. It improved by 1 per cent. I do not scorn that; it shows an improvement. Let us consider how that family has done under this Government. Its net income has increased by 13 per cent. I know that the hon. Member for Great Grimsby is a fair person, and I now look forward to his informed comment.

Mr. Austin Mitchell: The statistics that the Opposition were giving are the important ones. The Government who stated that they would reduce the burden of taxation have increased the burden of direct taxation on those with average earnings. That is the only point that we make. It is surely hypocritical to bring in other factors to try to compensate for the real increase in the burden of taxation that has taken place.
Secondly, what the Chief Secretary is saying is directly opposite to what the Chancellor has said. The Chancellor said that earnings are going up too much and that it is our responsibility to pay ourselves less, to be less grasping about take-home pay and to price ourselves back into jobs. Is the Chief Secretary therefore telling the Chancellor of the Exchequer that he is wrong about this?

Mr. Rees: The hon. Gentleman is tempting me to go into a wider field than I think is justified by the clause. I would be delighted to talk about the workings of the labour market, but 1 suspect that, were Ito do so, I would be in some difficulties in staying within the rules of order.
The hon. Gentleman explains what has been happening. Of course real earnings have been going up. Let us take the more general point that he and his hon. Friend the Member for Thurrock made, that the burden of taxation has gone up. But, of course, they have not looked at the composition. They have not realised that two fifths of the increase is due to North sea oil, two fifths to indirect taxes and one fifth perhaps to a degree to national insurance contribution and to rates. We are endeavouring to cap rates, and I therefore hope we shall command the support of the hon. Gentleman in our endeavours. Neither the hon. Gentleman nor his hon. Friend the Member for Thurrock has recommended or even recognised what we have endeavoured to do at the lower end of the national insurance contributions for the employee, again something that I should have thought would command their wholehearted support.
Wherever one turns, therefore, one sees that the Government have been devoting considerable resources to ameliorating the direct tax burden of the less well off members of the community.
The hon. Member for Thurrock went on to say that that ignores VAT. I would only cite, as I often do, but perhaps the Committee will forgive me if I recite it, what a distinguished Minister in this field used to say. I refer. of course, to Lord Barnett. He said—and I commend this again to the Committee—that VAT is nothing like as regressive as we thought. The hon. Member for Hodge Hill, who I know does his homework thoroughly, will recall it, so he would not inflict that point on us because he knows that it is not soundly based. He knows that the range of exemptions and the range of zero rating that were built into the system by Lord Barnett when he introduced VAT in 1972–73 were designed to ensure that there would not be undue burdens on the less well off members of society.
Test it as one will, I assert with utter confidence that the Government's record in relation to the less well off members of the community in respect of direct taxation bears the closest possible scrutiny and, by any test, comes out much better, I am afraid to say, than that of the previous Labour Administration. It may be that in Committee or, indeed, outside Parliament, we shall be told in some detail what a Labour Administration would propose in this regard so that we can compare the kinds of measure that we have introduced and what a Labour Administration would introduce and, to be fair, how they would support them. I do not suggest that the Opposition do that tonight. We shall then be able to take the debate further. Today, however, I am simply concerned to commend clause 35 to the Committee and I am genuinely sorry that there is not more common ground in this area.
12 midnight
I conclude by summarising the reasons why I suggest that the clause should find favour with the whole Committee. First, it crowns what the Government have done since 1979. If the clause commends itself to the Committee today and to the House on Third Reading the basic allowances will have been increased by 20 per cent. in real terms in that period. Set against some difficult economic years, that is a remarkable achievement. Again, as I pointed out in relation to the age allowance, it means that we shall have the highest married man's allowance since the war and the highest single person's allowance since 1973–74. Moreover, I should point out to the hon. Member for Hodge Hill that the increases since 1978–79 will have taken 1¼ million of our fellow countrymen out of charge to tax.
The hon. Member for Thurrock said that there had not been a peep out of the Government about the poverty trap and problems of that kind, but surely taking all those people out of tax altogether is a most significant contribution. The hon. Lady may have other suggestions as to how we can make further advances, but to underpin any further advances we shall expect massive support from the hon. Lady and her right hon. and hon. Friends for our efforts to restrain public expenditure because only then shall we be able to make the kind of advances in this area that will command the hon. Lady's support.
We have concentrated massive resources on increasing the allowances because this takes people out of charge to tax, because it concentrates the greatest proportionate


benefit on the lowest sector of taxpayers and, finally, because it takes people out of the poverty trap, although perhaps not so fast as the hon. Member for Thurrock would like.
For all those reasons, whatever other reservations and differences we may have tonight and possibly even on succeeding nights, I hope that we shall find common ground in supporting clause 35 and on that basis I commend it to the Committee.

Dr. McDonald: I do not think that the Chief Secretary has managed to say anything that would encourage us to regard clause 35 as the solution to the problems that I have outlined today and which the Labour party has outlined on many occasions. In some ways, I hardly know where to begin with the right hon. and learned Gentleman's speech. I do not wish to be unkind, but to me it seemed more like a dialogue of the deaf than anything else.
I will begin with the poverty trap. At best, the changes in the Budget will take between 5,000 and 10,000 families out of the poverty trap. Between 1979 and December 1984, the latest date for which figures are available, the number of families in the poverty trap increased fivefold to 250,000, so the effect of the Government's changes in tax allowances and their failure to keep their promises on child benefit has been to increase enormously the number of families in the poverty trap compared with the number caught in the trap under the Labour Government.
The mere fact that only 5,000 to 10,000 families will be taken out of the poverty trap even with clause 35 shows clearly that raising the basic personal allowances is not the way to deal with the problem. If the Chancellor had kept the promises made by his predecessor to raise child benefit in line with increases in personal allowances, far fewer families might now be caught in the poverty trap. If the Chancellor of the Exchequer or the Secretary of State for Social Services announced an enormous increase in child benefit, the number of families caught in the poverty trap would begin to decline sharply. I could say a great deal more on that point in answer to the Chief Secretary's arguments.
I shall instead turn to a further point made by the Chief Secretary. He said that our amendment and comments about clause 35 were contradictory, but they are not. He said that on the one hand we argue for an increase in the age allowance so that pensioners are treated in the same way as those in receipt of ordinary allowances, and on the other we want an increase in child benefit. Obviously, an increase in child benefit would benefit few pensioners, but it would help a small proportion of married couples—there are only 6 million families with dependent children out of 20 million married couples. Therefore, the figure is less than 50 per cent.
We have focused so much attention on child benefit because poverty has affected families with children far more seriously, especially since 1978–79, than families without children or pensioners. That is not to say that there are no poor people to be found in those two groups. However, families with dependent children face the most severe problems of poverty.
If the Government are to concentrate on dealing with poverty, child benefit should be an important part of their programme. During the run-up to the budget and since then we have said that the attack on poverty should take

three forms. The Government should increase pensions, increase child benefit, and put the long-term unemployed on the proper rate of supplementary benefit. The latter would cost a small sum—about the size of the sum that we shall debate tomorrow. There are more than 1 million long-term unemployed, that is, those who have been unemployed for more than 12 months. Our attack would, therefore, be three pronged. We refer to child benefit frequently because we know that families with dependent children face the most severe problems of poverty.
Yet, Conservative Members worry about those who, according to the Daily Mail, may face a marginal tax rate of 98 per cent. My hon. Friend the Member for Great Grimsby said that whoever pays that amount of taxation is a high income earner. Such people are few and far between and, probably, pay such a high marginal rate of taxation because they manage their tax affairs incompetently. Whoever pays 98p has an extremely high income.
When we talk about families caught in the poverty trap we are referring to families on extremely low incomes, for whom a further 50p or £1 a week is a matter of importance, and makes the difference between a tin of baked beans and a loaf of bread to feed the kids or nothing. We are not talking about extremely high wage earners who might suddenly find that they are losing 98p on the nth pound. That is why we are shocked and upset when we hear shouts from the Conservative Benches about such a possibility and we do not hear the same horror and disgust being expressed at the notion of families on such low incomes being faced with marginal tax rates of 75 per cent. or more. The number of families faced with those burdens has increased throughout the six years of the Government's period of office. Clause 35 will not do much to alter that position. Increasing child benefit substantially would certainly help to rescue many families from the poverty trap, and that is why we so constantly insist on the importance of that point.
The Chief Secretary, understandably, made some play with my references to VAT and so on. The Chief Secretary—as the Financial Secretary had done the week before—compared the increases in real take-home pay under the present Goverment with those under the last Labour Government, and I did not contradict the statistics which were given in the Financial Secretary's speech last week. What I said was that simply to refer to real take-home pay is not the whole point. It is, of course, entirely to the point if one is talking about the increase in the basic tax allowances. But simply to talk about the increase in the real take-home pay for lower income families is misleading, because it leaves out the other costs which low income families face and which bear more heavily on them. We are, of course, referring to 15 per cent. VAT and not to 8 per cent. Inevitably, the almost doubling of VAT bore heavily on low income families.
I described as a misleading statistical exercise the other charges and alterations in the social security system, such as housing benefit, which make a comparison of real take-home pay in an effort to describe the changes in the living standards of those with below-average earnings under the present Government and those with below-average earnings under the Labour Government. I can understand the Chief Secretary playing little games and referring, in the course of so doing, to Lord Barnett. Nevertheless, the Chief Secretary must face the fact that the bare comparison of the increases in real take-home pay under the two


Governments is entirely misleading if one wants to use it to describe the changes in living standards. That is why I referred to that point, although I understand that it does not, of course, fall within clause 35.
None of us wants to oppose the increase in personal tax allowances, but the point that we have to make again and again is that it benefits the better off more than the low paid. It is part of the continuing distortions in the tax system which have occurred since 1979, and which have led to a lightening of the burden of taxation for the better off and little improvement in the burden of taxation on those who are worse off.
We have discussed many statistical examples and I do not want to delay the House, but let us consider the married couple, where there is a part-time working spouse and no dependent children. In 1978–79 their combined tax and national insurance contributions were 15·9 per cent. of their earnings. In 1985–86, following the application of clause 36, they will be 16 per cent.
With 10 times average earnings for the same couple, 65 per cent. of their income would have been taken in 1978–79, and 50·9 per cent. of their income would be taken in tax and national insurance contributions after 1985–86.
That is the inequality and the discrepancy which concerns the Opposition, along with the poverty to which I have referred. We consider the Government's measures entirely insufficient to deal with the unfairness and with the poverty which exists in Britain.

Question put and agreed to.

Clause 35 ordered to stand part of the Bill.

Clause 40

RELIEF FOR CLASS 4 CONTRIBUTIONS

Question proposed, That the clause stand part of the Bill.

Mr. Terry Davis: I shall be grateful if the Financial Secretary to the Treasury will take this opportunity to reply to the point which I put to him on Second Reading and which he overlooked when he replied to that debate.

Mr. Moore: I shall address myself to the clause and endeavour to deal with the specific matter which the hon. Member for Birmingham, Hodge Hill (Mr. Davis) raised on Second Reading. As most Ministers deal with many issues when replying to a debate, I cannot remember the specific one that he raised. I have no doubt that the hon. Gentleman will seek to intervene again in the debate to remind me what it was. If he does so, I shall endeavour to reply. If I cannot do so adequately tonight, I shall seek later to convey the information to him.
I realise that we must be considering the Finance Bill and that it must be May, because we are still at it, as it were, at 15 minutes past midnight. I have no doubt that we are all quite comfortable in Committee terms.
Clause 40 seeks to provide tax relief for the self-employed on one half of their class 4 national insurance contributions. The relief will be given as a deduction in computing total income. This means that it will be allowed after the profits on which class 4 contributions are based are worked out, and so will not in turn affect the amount of the contribution. The Committee will be interested to

know that about 1·1 million self-employed will benefit from the relief. It will be given at the taxpayer's marginal rate so that, where he is liable at higher rates, relief will be given at his highest rate. For someone liable for the maximum class 4 contribution for 1985–86 of £607, and paying tax at 60 per cent., the benefit will be £182. I have details of particular examples which the hon. Member for Hodge Hill used on a previous occasion, but he may prefer me not to go into them in detail as they prove his points and mine as well. However, I should be only too happy to go into details if he wished me to do so.
The change will provide a substantial boost to the self-employed and underlines the importance which the Government attach to this part of the economy. The majority of our smallest businesses are in the self-employed sector and it is from here that we see an increasing proportion of lasting jobs. The number of self-employed has increased by nearly one third since 1979.
This is but one of many measures which the Government have taken to help small businesses. Apart from the changes in national insurance contributions in the Budget, the income tax thresholds have been increased and capital gains tax retirement relief is being extended. We shall probably be discussing later the extension of that relief. Most recently, the report entitled "Burdens on Businesses" identified the priority areas for reducing the burden of regulation. The report is being followed up urgently.
Previously, the self-employed have not been entitled to set any part of their national insurance contributions against tax. In law these contributions count as a personal, not a business, expense. This contrasts with the position on class 1 contributions, where the employer's share of the contributions payable in respect of his employees has always been tax deductible as a business expense. The self-employed have long argued to both sides of the House of Commons that part of their contributions should be similarly allowable. The Government are persuaded of the rightness of their case and the clause remedies what many of us see as a long-held grievance. I trust that both sides of the Committee will support the clause.

Mr. Terry Davis: I had hoped that we might make rapid progress and, therefore, I made only a brief opening contribution. It is clear that the Minister has missed the point that I made on Second Reading. I shall repeat it, because I am sure that he will try to reply to it this evening rather than engage in correspondence, if only to save us debating the clause again on Report.
As the Minister has noted, the benefit of the arrangement is much more for someone on very high earnings. For someone who receives more than £45,000 a year, the benefit of tax relief on class 4 contributions amounts to £182 a year. However, the benefit for someone at the top end of the band earning £13,780 is only £91 a year. The Financial Secretary has used those figures.
On Second Reading, I asked the Government why they had chosen to reduce the classable contributions paid by the self-employed as they have done. There are two ways in which they can be reduced. The Government have chosen to allow tax relief on half of the contributions. On Second Reading, I told the Financial Secretary that the same effect could be achieved for most self-employed people by reducing the amount of the contribution from 6·3 to 5·3 per cent. That would provide exactly the same amount of money to a self-employed person earning


between £4,150 and £13,780 a year and mean that someone who earned £45,000 a year would still benefit to the tune of only £91 a year from the reduction in class 4 contributions.
We see no justification for giving tax relief on class 4 national insurance contributions, thus providing twice as much money for the person who earns £45,000 a year as for the person who earns £14,000 a year. that is not soley a matter of equity; cost is also involved. the Government's choice involves more paperwork for the self-employed person, because that person must claim tax relief in the tax return. It also involves more work for the Inland Revenue. The Financial Secretary is nodding, so I must be right.
The Treasury has admitted in a press release that the Government's preferred method will involve a significant increase in the number of people employed by the Inland Revenue. I thought that the Government wanted to reduce the number of civil servants, but they have chosen a method that is inequitable and involves the employment of more people at tax offices—they will employ more people to be unfair.
I have heard somewhere that what the Government describe as a significant increase in staff in the Inland Revenue will come to about 50. They are to be employed, not to collect extra revenue, but to distribute this largesse to the self-employed. That is strange behaviour for the Government, especially when we are told that they have had to shelve plans to mount an assault on the so-called black economy by employing people to counter tax evasion, which would involve the creation of 42 new posts. The Government say that they cannot afford 42 people to deal with some of the most serious aspects of tax evasion, and yet they can employ more than 50 people to ensure that people who receive more than £45,000 a year get an extra £182 as compared with £91 for those who earn just less than £14,000. I had hoped that the Financial Secretary would be able to justify the cost of that inequity. I hope that he will do so now.

Mr. Moore: When he wound up the debate on Second Reading the hon. Member for Hodge Hill made many points, and I was not sure to which matter he was referring. As I did not want to delay us I did not want to go into detail, but I am delighted to do so now. So that I can be complete in my coverage, I shall try to cover all the points that he made.
I refer, first, to the principle. I see the hon. Gentleman's point. However, with respect, in this instance there is a confusion in the arguments that he is advancing because we are seeking to give the self-employed a similar tax relief to that which the employer has in relation to a part of his contribution. Simply reducing the rate of class 4 instead of giving tax relief would not bring the tax treatment on to a fairer basis. A cut in the class 4 rate would be at odds with the contributory principle under which the self-employed must broadly pay their way for the benefits they receive.
We are not in dispute about the facts. The hon. Gentleman is right about the extent to which those on a higher income will benefit more than those on a lower income, but there is a ceiling. The maximum benefit is about £182, against the £607 potential maximum total contribution, compared with a benefit of only £90 in the case that he illustrated.
On Second Reading the hon. Gentleman went into considerable detail about a person with profits of only £100 a week. I would not challenge any of the facts. He rightly suggested that that person would save only 19p per week. It is important to view that in relation to the saving against the amount of his class 4 contribution as well, because it is the combined package that someone in that category will see is he is considering his position of self-employment. As the hon. Gentleman knows, class 4 is calculated on an annual basis. On profits of £5,200—£100 a week—the figure comes out at £1·27 per week, and 19p represents a 15 per cent. reduction. If the contribution is small, the tax savings must also be small, by definition. The saving is much more significant if the reduction in class 2 of £1·25 is included. On the combined class 2—class 4, the person might now pay £6·02 per week. Under the proposals in the clause and the class 2 national insurance changes, he would pay £4·58 per week, a reduction of £1·44, or approximately 24 per cent. I accept that it is not a massive reduction in money terms, but it is significant in proportionate terms.
On Second Reading the hon. Gentleman went into detail on the potential additional paperwork, and referred to cash flow implications. I shall refer to that too, for completeness. There will be next to no extra work for small business men. As the hon. Gentleman was right to say, it is the inspector who calculates the class 4 contributions by reference to the business profits. It is he who will calculate and allow the class 4 tax relief. There will not be a cash flow effect. Class 4 is charged on the income tax assessment on the profits of the business, and is payable in two bites, in January and July, along with the tax on those profits. In the vast majority of cases the class 4 relief will be given in that tax assessment. Thus, by the time the business man pays his tax and class 4, his tax bill will have been reduced to reflect the class 4 relief. The reduction in class 4 itself would not come through earlier.
The hon. Gentleman was right to say that there would be additional staff. One should put it in proportion, but he is right, and it is an important point. The additional Inland Revenue manpower cost of administering the relief is estimated at 60 to 70 units.
I apologise if I did not cover all the points initially. I trust that I have done so now.

Mr. Terry Davis: I readily accept the Financial Secretary's most courteous correction of my point about cash flow. Since our debate on Second Reading I have done some more homework and realised that I exaggerated the argument.
With regard to the benefit to a self-employed person paying class 4 contributions, I stand by what I said.
The Financial Secretary referred to the point that I made on Second Reading about 19p a week, but that was a separate issue. I was commenting on the progressive nature of these contributions—a point covered by the Chief Secretary in that and other debates. He said that it was inevitable in any increase in allowances. We disagree with the Government about increases in tax allowance being a way to deal with the poverty trap, because it benefits people on the highest marginal rates of tax.
12.30 am
I shall concentrate on the inequity of giving £182 to the self-employed person who receives £45,000 a year, but only £91 to the person who receives £14,000 a year. To do that, the Inland Revenue proposes to employ between


60 and 70 extra staff. I am delighted to receive the Financial Secretary's assurance that there will not be any extra paperwork for the taxpayer, but it is bad news for the taxpayer that he will have to pay more for the extra staff to calculate this tax relief, when it could be done without any extra staff, if only the Financial Secretary would agree to reduce the rate of contribution from 6·3 to 5·3 per cent., and concede the Labour party's point about equity at the same time, because that would be the inevitable consequence of doing it in the way that we have suggested.
The Financial Secretary was himself mistaken at one point, when he said that it is important to maintain the contribution at 6·4 per cent. for class 4 contributions because of the benefits to which the self-employed person is entitled. I was not present when class 4 contributions were introduced by the Labour Government, but I know that they brought no increased entitlement to the self-employed. They were a method of ensuring that the self-employed person paid a fair proportion of the cost of social security. His rights and entitlements were not extended. Those entitlements all depend on class 2 contributions, so the Financial Secretary needs to do a little more homework on this subject.
The Opposition stand by what we said. The Government cannot afford to employ 30 people to counter the most serious aspects of tax evasion, but they can employ more than 60 people to ensure that people of very high incomes receive larger amounts than they would from the reduction in class 4 contributions.

Question put and agreed to.

Clause 40 ordered to stand part of the Bill.

Clause 54

ELECTION FOR CERTAIN MACHINERY OR PLANT TO BE TREATED AS SHORT-LIFE ASSETS

Mr. Wainwright: I beg to move amendment No. 9, in page 51, line 19, leave out 'fourth' and insert 'fifth'.

The Second Deputy Chairman: With this it will be convenient to take amendment No. 10, in page 51, line 23, leave out 'fourth' and insert 'fifth' and amendment No. 11, page 51, line 34, leave out `fourth' and insert 'fifth'.

Mr. Wainwright: At this exhilarating hour of the morning, I offer the House a respite from the feeble ritual of the cracked Tory pot calling the leaky Labour kettle black, a dreary procedure that reminds me every year of the occasion when a far eastern ambassador judged the beauty finals at Skegness. After surveying the two girls, each of whose charms had great supporters in the town, he announced to a breathless crowd, "Both are worse." That describes what the Liberal party and the SDP have to contemplate every time that the Finance Bill is debated.
This amendment relates to what the Treasury chooses to think are short-life assets. In addition to the three amendments, we shall also have to amend similarly lines 8 and 12 in page 52. This matter began last year in reaction to the rather sweeping and ill-considered reform of the capital allowances for business taxation introduced in the Finance Act 1984.
In Committee on that Bill, my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) tabled an amendment to improve greatly and make much more realistic the capital allowances. That is what we seek to

do in these amendments. We returned to the matter on Report, by which stage we had the welcome support of the hon. Member for Croydon, South (Sir W. Clark), the well-known chairman of the Tory finance committee. He explained to me that he was unable to attend our debates today or tomorrow, but he did not explain why so few members of that committee would be attending the debates, although perhaps that was not altogether within his power.
Last year, our amendments had the united support of the various branches of the accountancy profession, although some of the best-known business organisations were rather slow to appreciate the threat which the Chancellor had implemented in the Bill and came round to our point of view only in the late summer or early autumn, by which time it was too late for last year's Bill.
The nub of our case, last year and this, is that the Government still have not taken on board the proposition which, in the view of the alliance, should be fundamental to all taxes on the profits of going concerns. It is that taxes on business profits should fall only on the true profits, no less and no more, which means profits computed on accepted accounting conventions, not on rackety ideas of depreciation used for special purposes by the Inland Revenue. The accountancy profession today does not accept the medieval reducing balance method of calculating depreciation. It disappeared with the Ark, and the statutes up to the early 1950s gave the taxpayer the option to use straight line depreciation, which people used in their own accounts. Therefore, we have gone backwards in recent years.
Where the basic proposition that taxes on profits should fall only on the true profits is flouted, gross unfairness is inflicted between one business and another, some trades are crippled, and some are even extinguished. On this matter of taxing true profits, not spurious ones, the Government start, as previous Governments have started, with two great minuses. First, they fail to distinguish between incorporated and non-incorporated businesses. Last year, the story that such injustices over capital allowances were as dust in the balance compared with the promised reduction in corporation tax took no account of the fact that many traders—the very traders whom the Prime Minister so frequently purports to support, including new and small businesses—do not pay corporation tax. They are assessed under schedule D, and they do not receive a penny benefit from the proposed reduction in corporation tax.
The second minus is the glaringly obvious one that the Government, like all their unfortunate predecessors, make no allowances for the ravages of inflation. However, almost a generation ago—years ago—our neighbours across the channel in France and Belgium started to allow their tax-paying businesses to index their assets for depreciation purposes. They caught on to that obvious intellectual approach to the problems of continuing inflation, while we still pretend for revenue purposes that inflation does not exist, let alone, as at present, increasing.
It is important that the tax statutes should provide honest and realistic allowances. That was done at one time, when the Committee was rather wiser than it seems to be now. Until the late 1940s, there were separate schedules of depreciation allowance for different sorts of machinery. In those golden days, the Inland Revenue thoroughly and conscientiously met the various trade associations for different industries, discussed the type of


machinery that those industries were using and negotiated a rate of depreciation for it. The schedules were long, but they were meticulously drafted. They ensured that some type of justice impregnated the tax statutes. The Inland Revenue not only tailor-made the allowances but gave the company the option of choosing the straight-line method. All that was lost on the Chancellor when last year he hit upon this crude idea of imposing the 25 per cent. reducing balance on all traders.
Before this year's Budget, the London Chamber of Commerce expressed its concern about this injustice, saying that the new allowances
have already hit machinery-intensive firms very hard …in the light of the pace of technological change, capital expenditure should be written off for tax purposes by straight-line allowances over four years.
The CBI virtually echoed the warnings of the London Chamber of Commerce. Since the Budget, and in the light of the Finance Bill, the Association of Independent Businesses, one of the leading organisations of new and independent business, has offered its support. It has said:
This Association would support your amendment to alter clause 54 of the Finance Bill to read 'fifth anniversary'.
The association went on to give its reasons.
An interested body, the British Precast Concrete Federation Ltd., whose members employ 23,000 people, also supports this change. It estimates that, taking favourable and unfavourable factors into account, under the system of depreciation introduced last year,
the industry will be worse off by about £6·3 million a year.
That is a large deprivation. It is a ravage caused by the tax system to an important part of the hard-hit building industry.
A distinguished accountant who is the head of taxation for one of the clearing banks and a member of the "One hundred" group of chartered accountants, so-called because they are the finance directors or the taxation managers of the 100 largest companies in the kingdom, wrote to me saying:
I would …wish to generally support the thrust of your proposed revision which appears to give a more realistic interpretation of short-life assets used in industry and commerce …it must be right to tailor the relief given as closely as possible to circumstances in economic life.
That is just what our amendments intend.
In brief, the amendments have a different definition of short-life assets from that of the Government. We believe that short-life assets are much better described and treated as those assets that are expected to have a life of up to six years. The Government choose to take a more restricted view. For the most part, the clause as drafted would apply only to computers and allied equipment and to some highly experimental high technology equipment. That is all very well and splendid. Our amendment would include not only equipment that has a high risk of obsolescence but a good deal of equipment that is the victim of wear and tear through being knocked about and heavy work in the earth shifting sector. Many of the tools used in the building trade and tractors which are used in rough country are quickly bashed to pieces. In other words, the clause should include a much more earthy range of plant and equipment than the somewhat esoteric and sophisticated equipment which will probably obtain relief under the clause as drafted.
I come to the human side of the matter. The people who we believe need the more realistic definition are those who run new and small businesses. They are dependent upon

ploughed-back profits to keep going, let alone to expand. With today's news that lower interest rates will be deferred owing to the money supply getting out of control, the message from small businesses, whether they are incorporated or unincorporated, is that unless they are allowed to keep a reasonable proportion of their profits we can say goodbye to much growth in that sector, because the Government's regime has made borrowing intolerably expensive for small and new businesses.
There are several other serious defects in the clause, and it would not surprise us if the Government were to table some fairly substantial amendments at a later stage. I do not believe that they have considered the enormous administrative burden that their system of requiring irrevocable elections, item by item, will mean. When they have second thoughts, they may come a little closer to our view.
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I warn the Committee, if "warn" is the right term, that we do not intend to let this matter go. Unless the Government see sense, we envisage returning to the subject in a big way on Report. In the meantime, we hope that the Government will realise the importance of giving a signal of hope to manufacturers by taking on board our amendments and adopting a much more realistic definition of a short life asset.

Mr. Moore: I am not sure to what extent I should cover all the ground that the hon. Member for Colne Valley (Mr. Wainwright) covered. I am fascinated by his description of some aspects of our accountancy scheme as medieval reducing balances. I do not profess to be an accountant. I am not blessed with that expertise. During my 20 months in the Treasury I have heard that large chunks of British industry have benefited in the past from the pooling system which plainly requires the benefits of reducing balances. At some stage we can have a longer debate. I see the hon. Member for Birmingham, Hodge Hill (Mr. Davis) nodding. He is a former auditor and professional accountant.
I understand the point that the hon. Member for Colne Valley is making. The second part of his speech was more an expression of his frustration at the nature of parts of last year's corporation tax changes, and the extent to which the clause and the amendments relating to it go from that base. I understand the points that he is making, but I do not accept them.
I hoped that the hon. Gentleman could have started with a general welcome for the way in which we recognised the point which he and hon. Members on both sides of the House, although they did not like the system honourably made about what they saw as one of the flaws in it.

Mr. Wainwright: The Financial Secretary may recall that I presented that bouquet on Second Reading. I am anxious not to bore the Committee with repetition.

Mr. Moore: I assure the hon. Gentleman that flattery and compliments can never bore Treasury Ministers. I am only too happy to receive such plaudits again and again. The hon. Gentleman is correct. He mentioned the point on Second Reading.
It might be helpful if I spoke a little wider than the amendments, as the hon. Gentleman legitimately did. The amendments relate to a refinement of the capital allowances code which has been welcomed by both sides


of the House—the hon. Gentleman confirmed that welcome—and industry since my right hon. Friend the Chancellor announced it on Budget day.
Hon. Members will recall that one feature of the fundamental changes to the system of business taxation launched by my right hon. Friend in his 1984 Budget was the reduction in the rates of corporation tax. I can discuss unincorporated busninesses, but it would not be the moment as we have just had a debate which covered them. I hope that at some stage I shall be able to put on the record the other benefits that the Government believe they have added to unincorporated sector. He was right to say that the small company rate was reduced to 30 per cent.—obviously of benefit to the unincorporated—and the main rate is being reduced by a third over three years.
Another benefit is the gradual phasing out of the 100 per cent. first year allowances on business machinery and plant. The effect will be to encourage business investment, which is expected to be commercially worth while and profitable and to discourage investment which is made only because of the tax incentive. When first year allowances are phased out on 31 March 1986, machinery and plant will generally attract an annual writing-down allowance of 25 per cent. calculated on a pooling basis. I have explained why that has some advantages. The cost of plant goes into the pool, the proceeds from sales are deducted from it and the annual allowance is given on the balance.
The pooling of expenditure and disposal proceeds in this way means that balancing adjustments are not made when individual assets are sold or scrapped. Separate records and tax computations for each and every asset are not therefore needed. These are many of the advantages that exist under the WDA system. That saves work for the business, its accountants and for the Inland Revenue.
A 25 per cent. writing-down allowance on a reducing balance basis enables 90 per cent. of the cost of a business asset to be written-off for tax over eight years. This is, on average, more than adequate for the machinery and plant of many businesses, but we recognise that for some assets—especially, but by no means exclusively, those commonly referred to as high tech—it does not adequately reflect the rapid depreciation which they experience whether through technical absolescence or exceptionally heavy use. The definition goes way beyond high tech into many other items—for example, for some items in the heavy contracting industry there is usually a two to three year life rather than the eight year average life.
It might be useful if I write to the hon. Gentleman and circulate the letter to illustrate the categories of assets that we could identify, which might be helpful. The new scheme represented by clause 54 together with schedule 12 will enable the tax allowances for assets of this type to be brought into line with actual depreciation when they are sold or scrapped.
The new scheme will inevitably complicate the system introduced last year. That is an unavoidable price to be paid. It has been designed with simplicity very much in mind in order to keep to a minimum the additional compliance burden on businesses.
I ask hon. Members to understand that the kind of administrative detail required is required anyway within a business organisation. I do not think that it will much extend that work, but it will complicate matters. It is a relief to help businesses, and to that extent it must add complications to an otherwise simple pooling system.
Traders will be able to elect to have the capital allowances on business assets of their choosing—that is a critical phrase—calculated separately from the main business pool for a period of up to five years—that is, depooled. It is this period which the movers of the amendment seek to extend by a further year.
If the asset is sold or scrapped in this time, a balancing adjustment will be made so that the tax allowances over the business lifetime of the asset are equal to its commercial depreciation. That means that if an asset is scrapped altogether, a balancing allowance will ensure that the cost is fully written-off for tax. On the other hand, if the asset is sold in the five-year period for more than its tax written-down value, a balancing charge will be made to recover the excess allowances given.
If the asset is not sold or scrapped within the five year period, its tax written-down value at the end of that time will be transferred to the main machinery and plant pool. Thereafter, it will be dealt with for capital allowance purposes as if it had never been depooled.
Traders will have two years—a substantial amount of time—from the end of the year in which they bought the asset to make a depooling election. That time limit means that about a half of the five-year depooled period will have passed before an irrevocable choice has to be made. Traders will therefore be able to elect—

Mr. Michael Stern: While accepting that two years is a long period, does my hon. Friend agree that in many cases the logical time to make an election will be when a business, whether incorporated or unincorporated, is submitting its tax computations to the Inland Revenue, in conjunction with, but often frequently later than, its accounts? There may be cases when accounts have been submitted on time but the detailed computations cannot be sorted out within the two-year period. That has been found in applications for stock relief, which are also within the two-year period. In that case, will my hon. Friend consider whether a rigid time limit on such an election is necessary or whether, given that this is a relieving provision for tax purposes, it would be more appropriate to leave it at the discretion of the Inland Revenue?

Mr. Moore: We considered the issue with care and took on board the point that my hon. Friend makes. One of the most important features was to try not to increase the Inland Revenue activity; we do not want, as the hon. Member for Hodge Hill earlier pointed out, to add to the already heavy burdens that the Inland Revenue bears. Although we looked with care at the timing, I will look at the point that my hon. Friend raises, but I cannot say that I am attracted to it at first blush.
I was saying before my hon. Friend intervened that if the asset is not sold or scrapped within the five-year period, its tax written down value at the end of that time will be transferred to the main machinery and plant pool. Thereafter, it will be dealt with for capital purposes as if it had never been de-pooled. As I pointed out, traders have two years from the end of the year in which they bought the asset to make a de-pooling election.
This time limit means that half of the five-year de-pooled period will have passed before an irrevocable choice has to be made. Traders will, therefore, be able to elect selectively knowing which of their assets have already been sold or scrapped and which are likely to be during the rest of the de-pooled period.
The new arrangement in clause 54 and schedule 12 has the twin advantages of enabling assets the working life of which, based on the knowledge and experience of the trader, is much shorter than the average, to be fully written off, while at the same time maintaining the advantages of pooling for the generality of business machinery and plant.
The scheme as proposed in the Bill requires the transfer of unrelieved expenditure on an asset to the main business pool at the end of the fourth year following the year of acquisition, if the asset has not been sold in this time. These four years, together with the year of acquisition, make up the five-year period of separate treatment.
The amendment seeks to extend this period to six years by requiring the transfer to the main pool to be made at the end of the fifth year, following the year of acquisition, if the asset has not been sold. It is a matter of judgment and analysis. We believe that that would be going too far for a scheme deliberately aimed at short-life assets; and, in any case, we do not believe that it is necessary.
On any test, a five-year de-pooled period embraces the genuine short-life asset. It is not, therefore, immediately obvious that other and deserving categories of machinery and plant would be brought into the new scheme by a one-year extension, or, alternatively, are being kept out by the period proposed in the Bill.
I am sure that the hon. Member for Colne Valley has done the calculation, but it is relevant to note that after six years, more than 80 per cent. of the cost, under the WDA system, of the plant dealt with in the main pool has been written off for tax. To accept the amendment would add to the compliance costs of business and to the administraive costs of the Revenue, both of which we want to minimise. The amendment would not, therefore, improve the proposals as drafted but could introduce some additional and unnecessary costs, and on that basis we could not commend it to the Committee.

Mr. Wainwright: I regret the fact that the Financial Secretary did not give some indication of the different classes of asset which he claims will be helped substantially by the Bill as drafted. Until I have seen his list and had an opportunity of testing it with industrial organisations, I remain profoundly sceptical.
There are limits to what an individual hon. Member can do under the present arrangements in Parliament, but I did some investigation into what short-life assets really consist of, and that satisfied me that the period in the Bill is narrow and will leave out a good deal of plant which is heavily knocked about in the course of construction and other operations and for which about six years is a reasonable life.
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I am sorry to differ from the Financial Secretary on a matter of the simplest third form arithmetic, but it is misleading to suggest that, on the reducing balance system, the asset is virtually written off by the eighth year. Even at this hour of the morning, we must not get our arithmetic so wrong.
I have been provided with an example from the files of a firm of distinguished city accountants. It involves a small, hard-working businessman who set up as a small haulage contractor. His capital equipment cost him

£12,800 and consisted of a tractor and two trailers—a fairly classic example of someone trying to get a living in the harsh economic climate that has been thrust upon us.
Suppose that man elected for depooling, on the honest basis that he thought that the tractor would shake to bits in about five years, but he found in the fifth year that not only was the tractor miraculously just surviving, but he had no money to renew it and could not afford a bank loan for the purpose. The accountants have worked out that by the end of year five, out of the initial expenditure of £12,800, he would still have £3,037 not written off.
It is wrong that small traders, struggling to establish themselves, should be taxed on profits that do not exist and are merely imaginary. The claim that the asset is virtually written off by the eighth year is not true.
I shall spare the Committee a long dissertation on pooling, but the Financial Secretary is trying to have it three ways at once. He extols the virtues of pooling, but also extols the virtues of the clause, which is a depooling measure and will mean that all the individual items that he professes to regard as so burdensome to business and the Inland Revenue will all appear. A vast number of businesses will make the election, just to be on the safe side.
What is the objection to the proper, diligent method of recording each asset? Any self-respecting company keeps a plant register. It does not have an amorphous mass called "machinery"; it has a register of assets, who made them, their cost and their estimated life on installation. As most businesses use the straight line method of depreciation, they keep detailed individual depreciation records. It is bad management to have a vast, unspecified collection of assets with no identification.
If the Financial Secretary believes that the Inland Revenue will object to the record keeping, let him say so. It is inaccurate for him to claim that business does not want to keep the records. It keeps them, anyway. I am not convinced by the hon. Gentleman's reply, but at this hour it would not be wise to press the amendment to a Division. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Blair: As has become apparent from the speeches on the amendment moved by the hon. Member for Colne Valley (Mr. Wainwright), in many ways clause 54 is a belated attempt to recover from some of the disasters of the 1984 Budget changes in capital allowances. The distorting effects of those changes can be seen in the capital investment figures for 1984 and the projections for 1985. There was a considerable rise in the amount of capital investment in 1984, dropping away in 1985. This bulge seems largely to be a result of companies bringing forward their purchases before the capital allowances changes fully take effect.
It is worth mentioning as a matter of background that the CBI survey, which is fairly heavily relied upon by the Government, says that many companies expect capital investment to fall quite sharply. Secondly, capital consumption as a whole in the United Kingdom has exceeded investment by some £1·6 billion since the end of 1981. Without going in detail into what occurred before 1984, that system of capital allowances seems to me to have had three major commercial advantages. First, it


allowed a first year allowance of 100 per cent. on the purchase of plant and machinery. That obviously gave a tremendous advantage to companies that were purchasing plant and machinery at the time because they could set off the entirety of the purchase price. Secondly, the pre-1984 system looked at the matter in terms of the purchase of assets, not the sale of assets. I am uncertain whether the clause, based as it is upon the sale of assets rather than the purchase of assets, will create as many problems as it seeks to solve.
Thirdly, under the pre-1984 system, there was no distinction between short and long life assets and thus none of the problems of what we will call depooling were brought into operation by the pre-1984 system. All the assets being in the same pool meant that, for example, in year one, if a company decided not to take the full 100 per cent. of its first year allowance, in year two it could set off any outstanding balance against the proceeds of sale in the same pool of assets.
The purpose of clause 54 is that the company could elect to treat an asset as a short life asset and, provided it is disposed of within the four years after acquisition, the balance of the loss could be set off against taxable profits.
It is right to acknowledge the problem of short life assets, particularly in relation to difficulties arising from obsolete technology. Under the 1984 Budget, prior to the clause 54 change coming into effect, the 25 per cent. could be claimed only in the first year of acquisition, and then 25 per cent. of the writing down allowance was claimed in the recurring years. If, for example, an asset was brought and disposed of in year two and sold at a loss, although that loss arose in year two, 25 per cent. of the writing down allowance has recurred over the years and therefore the loss can be spread only over a period of years.
I wish to put four specific points to the Minister in relation to the way in which the clause operates. It is quite difficult to judge what the precise effects of the clause will be. It is a matter of concern to me that the clause may have hidden problems that have been given inadequate consideration by the Government in introducing it in its present form.
First, I appreciate that any sensible company will have a register of its plant and machinery. In simply identifying a piece of plant and machinery, therefore, the clause is not placing any greater burdens on it in an administrative way. However, the election that will be made under the clause is an election on an individual basis for each item of machinery. Those items of machinery will then have to be shown separately as those that are depooled and treated as short life assets and those that are not. Has any consideration been given to the administrative and accounting problems involved in keeping a proper check to ensure that the assets sold as short life assets are the same assets that were purchased?
Secondly, will the Minister confirm that, if an asset treated as a short life asset is not disposed of within the five-year period, it simply goes back into the ordinary pool of assets? If an asset is not appreciating or certainly if it is depreciating by at least 25 per cent. per year, it would surely be in the interests of any sensible company to treat virtually any asset as a short life asset; because if the company decides not to sell it within the five-year period the asset will simply be treated in the usual way, but if it is sold the company will obtain the benefit of the short life asset provision.
Thirdly, the ability to set the balance against taxable profits arises on the sale of the machinery, not on the purchase as it did under the pre-1984 system. Has any consideration been given to the difficulties of companies in predicting when they are likely to sell? If allowances are given at the time of purchase, capital expenditure decisions are much easier to calculate. The time of sale is more difficult to judge, especially with new technology which may become obsolete at a time which is virtually unpredictable.
Finally, although I am a lawyer by training, I am not used to reading Finance Bills in great detail, and I am uncertain as to the mechanism which triggers the ability to set off the balance against taxable profits within the four-year period after the year of acquisition. What brings into being the ability to claim the benefit of clause 54 on short life assets? Is it the disposal as such, or is it what the clause describes as the discontinuance of the notional trade?
As I understand the clause, once the election is made the asset is treated as part of the notional trade separate from the actual trade and continues to be treated in that way until such time as
the notional trade is permanently discontinued
which is
when the short life asset begins to be used wholly or partly for purposes other than those of the actual trade",
at which point discontinuance arises and the ability to claim under clause 54 ceases. If that is so, could not discontinuance of the notional trade be artificially brought about by the company starting to use the asset wholly or partly for purposes other than those of the actual trade, at which point discontinuance would arise and the triggering mechanism of clause 54 would come into operation? I put that point to the Minister because it is important for the practicality of the clause.
We do not propose to vote against clause. However, detailed consideration of it may show that it creates as many problems as it solves.

Mr. Moore: I commend the hon. Member for Sedgefield (Mr. Blair) for saying that he was not an accountant. As a lawyer he has a far better grasp of the details than I have as a non-lawyer, let alone as an accountant. The hon. Gentleman raised some legitimate detailed points, but he started with some general points. I shall start with the general issues because it is sometimes difficult to find time to discuss them. It will also ensure that my officials advise me accurately about the hon. Gentleman's detailed questions.
1.15 am
The hon. Gentleman was a little unfair to go over the old ground of last year. It would be hard for me to go into great detail about the basic rationale behind the Government's corporation tax changes. The Government considered the investment achievement in the United Kingdom. Most people recognise that in the 100 per cent. first year allowances we probably had the most generous allowances in the Western world. I assume that the presumption would have been that they served one of two purposes—either they produced a greater quantum of investment and or at least as good, if not better, quality of investment. Otherwise why should valuable tax reliefs be given to encourage investment? There were many debates in Committee and on the Floor of the House last year including one about the long-term nature of jobs and


investments. The basic assumption from the OECD data, as opposed to the Government data, was—I have no figures to confirm the points that I made last year, buy my membory is reasonably good on this—that the overall quantum record was no better, and probably a little worse than the OECD average. Our supposed generosity, therefore, of first year full 100 per cent. allowances did not seem advantageous in that sense.
The second feature of the OECD figures suggested that, when one examined in detail the quality of investment, in all cases our rate of return on investment was below the unit return on capital employed. The country did not seem to benefit from the supposedly generous 100 per cent. first year allowances according to those two basic criteria. I shall explain why in a moment.

Mr. Wainwright: The Minister said that the OECD figures suggested that the British quantum of investment was no better than the other OECD countries, despite our admittedly generous allowances. Could the explanation not be quite different? Could it not be that to overcome the enormous political handicap of the continuous stop-go rhythm in the United Kingdom since the end of the war, British industry had to be given super-incentives to invest, otherwise there would have been no investment?

Mr. Moore: We could debate the matter for a long time. I accept that many other factors are involved. An analyst who looked at the nature of our 100 per cent. first year allowances would have been surprised to find that the two theoretical main advantages that might have flowed from them had not. The analysis that many people drew was that most people were consciously concerned with the post-tax, not the pre-tax, rate of return, that that had changed people's attitude prior to investment, and that to that extent we did not have the quality investment that might have flowed from a commercial analysis of investment potential as opposed to a fiscal or tax analysis. That was the basic pattern behind the very substantive changes. Having said that, we acknowledged, in the debates upstairs, that those were substantive changes in the whole of our system.
I accept that change does not necessarily run in line with the basic concept of pooling, but to the extent to which we saw a specific problem relating to short life

assets—the fundamental problem that we think we are tackling in the clause—we have sought to retain the basic advantages in the major system, together with the additional advantages that we offer for de-pooling.
The hon. Member for Sedgefield asked four specific questions, and I am happy to answer them specifically.
First, the companies will keep records and the inspectors will monitor claims.
The hon. Member asked about the blanket election proposals. He is right in the point that he made. The legislation will not prevent traders from making blanket elections, since the choice of which plant is to be treated as a short life asset is deliberately left to them. It is unlikely that they will do so, however, since they would then be at risk of balancing charges which would not arise were the plant to be kept in the main machinery and plant pool. A blanket approach would also require businesses—a point that the hon. Member also recognised—to keep separate records and make separate capital allowance computations for five years for each and every item of their business plant. It is much more likely that businesses will elect selectively so that the new arrangements will apply only to assets which they believe to have shorter than average working lives.
In thinking about how we could best help the business community in this area, our purpose was to try to allow the business community to seek to make their selective decisions themselves. Of course, we shall have to watch the particular point that the hon. Member rightly raised.
There is a clear two-year period for election which I think gives reasonable time, although my hon. Friend the Member for Bristol, North-West (Mr. Stern) has already intervened to question that point. I said that I would consider it with considerable care.
Finally, the disposal will normally trigger the balancing adjustment. There are some protections within the clause. I will look again at the last point that the hon. Member for Sedgefield made, and if I feel that there is any need to deal with it I shall do so before Report.

Question put and agreed to.

Clause 54 ordered to stand part of the Bill.

Schedule 12 agreed to.

To report progress and ask leave to sit again.—[Mr. Moore.]

Committee report progress; to sit again today.

PETITION

Transport Bill

Mr. Tony Blair: It gives me great pleasure to present a petition to this House from Durham county council asking for the rejection of the Transport Bill and any legislation seeking to implement the proposals contained in the White Paper on buses. It gives me great pleasure to associate myself with this petition against a particularly misguided but not untypical piece of legislation from this Government.

To lie upon the Table.

South Manchester Health District

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lennox-Boyd.]

Mr. Tony Lloyd: The Minister has an advantage tonight because he is accustomed now to late-night Adjournment debates, operating as he does as the Government's rear gunner on such occasions.
It is stated in the Order Paper that I propose to raise the subject of the
financial position of South Manchester Health District".
There has been a change from what I wrote originally, but I make no complaint about that. I described the debate as one on "The crisis in the South Manchester Health District". Perhaps the Clerks have news that the Minister is about to make a major announcement. The Minister shakes his head, which causes me to revert to my original cynicism. The Government face all crises by refusing to recognise their existence.
There is a real problem of finance in south Manchester. When my right hon. Friend the Member for Manchester. Wythenshawe (Mr. Morris), the hon. Member for Manchester, Withington (Mr. Silvester) and I went with a delegation to meet the Minister for Health, the Minister responded in writing some time afterwards and claimed that there was no evidence of suffering within the south Manchester area. My right hon. Friend has given me a letter from one of his constituents, who was an experienced senior nurse at the Wythenshawe hospital. She was admitted recently to one of that hospital's wards for treatment. She had heard that the Minister for Health had claimed that there was no undue hardship caused by staff shortages in the Wythenshawe chest wards. She wrote:
I beg to differ. I saw in one evening shift one sister and two auxilliaries with 29 acute patients in cubicles, not an open ward. Four-hourly treatment had to be done by SRN only.
She referred to a number of examples of things going wrong with patient care. As I have said, she was an experienced nurse. The letter is revealing about the state of play within south Manchester and I am grateful to my right hon. Friend for allowing me access to this piece of information.

Mr. Alfred Morris: I am grateful to my hon. Friend for quoting my constituent's letter, which I allowed him to see for the purposes of the debate. As my hon. Friend has said, Mrs. Staniforth is a former senior nurse at the Wythenshawe hospital. She was the nursing sister who was in charge of the first cardiac clinic at the hospital. She wrote:
I see in the not too distant future a tragedy happening, as staff are human beings and are asked to do the impossible.
That is a voice of long experience to which the Minister must respond tonight.

Mr. Lloyd: In quoting his constituent, my right hon. Friend is entirely accurate about the real position that is facing south Manchester. That position is recognised by the many consultants I have spoken to recently as well as by those involved in the nursing side and in other sectors throughout the health authority. The Minister for Health claimed that south Manchester is better funded than ever before. That might be so in terms of pound notes, and the chairman of the health authority accepts that more money is going into the authority, but the chairman has observed


that in real terms south Manchester has seen a 9 per cent. increase in the number of patients treated and, in effect, a static amount of money going into the services that existed two years ago. There has been growth money for cardiac surgery, for dialysis and for adult leukaemia, but it is not adequate to say that services are getting better when clearly they are not. What the chairman of the North Western regional health authority described as an overspend in south Manchester is more accurately described by the chairman of the South Manchester health authority as a shortfall that has been caused by underfunding.
It was claimed that south Manchester was heading towards a £2·8 million overspend. The region has been required to achieve efficiency savings of well over £500,000. There was no overspend. Salary increments for the staff within south Manchester amount to nearly £1 million. We are saying, in effect, that there is an overspend when the staff in a particular area under a particular authority become more experienced and more skilled and when they remain in post for more years. The salary structure of the NHS requires the staff to be given larger salaries to reflect its experience, skill and service, and that causes overspending. Every authority with a stable work force will therefore overspend eventually. That is nonsense. Of the £2·8 million, less than £500,000 can accurately be described as overspend. To some extent, south Manchester is penalised for its own success. The shortfall has had dramatic results, as the health authority has had to make some extremely unpalatable decisions which some people have described as butchery. Ony the regional chairman has been kind enough to call it a serious cut.
The authority has failed to maintain its property and it has decided, yet again, to cut capital spending and maintenance. That is an insane decision. For how many years can we fail to maintain hospitals? More serious is the decision to cut out 100 skilled and trained nurses, not as a result of rational planning of the nursing load but because they cannot be afforded under the mechanistic rubric put forward by the Government to the region. Another 200 jobs are to go in the service. The authority chairman has said:
The loss of 100 nursing posts cannot be sustained if the present number of wards remains open. We have, therefore, decided that a number of wards must be combined or closed in order to allow the nurse reduction to take place.
The lunacy is that ward closures are being dictated not by health need but by the need to reduce the number of employees on financial grounds. There is no health logic but a crisis management approach which bears no relation to the needs of people in the area.
I recently discussed this matter with consultants at the chest wards at Wythenshawe hospital. They are extremely angry because they are witnessing the dismantling of what has taken many years to build and because no logic underlies the decisions. They see no lack of demand for their services. Indeed, surrounding districts will not be able to cope with the increased demand once the 30 beds at Wythenshawe have gone.
When the cuts were announced, a spokesman for the authority said that patients from outside the area would no longer be able to come to south Manchester for treatment. The stupidity of it all is that that is not true. My

constituency forms part of two other health authorities, and it is clear that doctors in Trafford or central Manchester will continue to refer to south Manchester because there is no mechanism in the NHS by which south Manchester can refuse. That being so, there will be increased waiting lists, and patients from south Manchester will be refused treatment in their own hospital. Indeed, they will be told to refer themselves to other authorities.
With geriatric beds, we are told that the closure is temporary as the beds will eventually be called upon to serve south Trafford. In a recent Adjournment debate, the Minister was at pains to tell the hon. Member for Altrincham and Sale (Sir F. Montgomery) that no decision had been made about south Trafford hospital. One thing is certain—until a decision is made, it would be the height of foolishness to take beds out of operation.
The authority says that the policy is to support patients in the community, for example through the community geriatric nursing team, yet anyone who talks to those who operate in the community—such as the district nurses and community psychiatric nurses—knows very well that although south Manchester has tried to increase those community services, it has not increased them anything like adequately enough to cope with the increase that will come from the closure of those geriatric beds at Withington, and the general demand for community services. The reality is that community services have been under more strain. That is not my view, but the view of virtually every district nurse——

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Patten): indicated dissent.

Mr. Lloyd: The Minister shakes his head, but I invite him to come to south Manchester. He need not listen to me or Members of Parliament representing the area. He should go there instead. He need not listen to the regional chairman or the authority chairman. Let him talk to the consultants, the midwives, the nurses and the district nurses, and ask them whether they think that there has been an increase in community care and in the quality of services within the wards. They will tell him that there has been a deterioration and that they are working under greater pressure in that area, particularly in the community services on which we are now supposed to rely.
We are also told about the temporary closure of 21 surgical beds, and that they may be needed in future to help out in south Trafford. We are told that there will be an increase in the waiting lists because of such decisions and that general practitioners will be sent details saying where patients can be referred, in areas where waiting times are shortest. What a nonsense that GPs will operate on that basis. That concept is totally unknown in the NHS.
In his letter, the chairman of the regional health authority told me that there will be no great impact on patient care, which is a saving grace. Apart from those in the Government, the chairman is the only person who does not think that there will be a serious impact on patient care. He goes on to say:
Closures and changes of use are of course subject to public consultation.
That is not true. For example, the proposed transfer of the paediatric plastic surgery unit from Withington hospital to the Duchess of York hospital is not open to consultation because it is a transfer and not a closure, yet it is opposed


by every plastic surgeon in that unit. It is no use offering consultation on the closure of the geriatric unit simply because that unit is now closed already, in effect locking the stable door once the horse has gone. The other wards will not close until the end of June, but once again it is meaningless to offer consultation there because there is not sufficient time for adequate consultation. Such a consultation would be bogus and have no impact.
Morale is now very poor in south Manchester. It was poor already at the recent round of talks. Many people have expressed the real fear to me that the amount of cuts being asked for this time round will not be enough to save the £2·8 million. Around October, the authority might have to look for further cuts. The fact that those rumours and fears are abroad means that morale continues to shrink. We are seeing the dissipation of the one thing that makes our Health Service tower above that of many other countries—the great dedication of those working in it. It is desperately important that that is recognised, and that the Minister recognises that I am not simply making a political point; it would be made by all those people.
Therefore, I appeal to the Minister, if he does not believe what I say, to come to south Manchester and talk to those most involved because we have gone beyond the point of the matter being a simple political shuttlecock. We have reached the point where I need to appeal, on behalf of my constituents, to the Minister and the Government to take seriously the impact of the present round of cuts upon that authority.

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Patten): I am glad that the hon. Member for Stretford (Mr. Lloyd) has raised this important question. He has been supported by the right hon. Member for Manchester, Wythenshawe (Mr. Morris) and the hon. Member for Burnley (Mr. Pike). He characterised my role at the end of the parliamentary day as that of a tail gunner, who was the most lonely member of an air crew during the second world war. Happily, my loneliness is assuaged by the presence of my hon. Friend the Member for Manchester, Withington (Mr. Silvester), who has come to listen to the debate.
Health authority finance is a legitimate and important matter for public debate. The Government are responsible for the way in which the considerable and rising sums of money being spent in the NHS are distributed to different parts of the country. We have difficult decisions to make about the apportionment of funds between the different health authorities. We are ultimately responsible, and I do not dispute the fact that we should be discussing the important points that the hon. Gentleman has made. However, in any organisation as large as the NHS, spending so much money—a record £14·5 billion this year, which is more than 20 per cent. ahead of the rise in prices since 1979—regional and local determination must play some role. We cannot second guess from the Elephant and Castle every spending decision taken by a regional or district health authority.
However, regional and district health authorities should live within their means and their cash limits. Cash limits are not some new, draconian and Conservative introduction into the running of the NHS. They were rightly part of the last Labour Administration's way of running things. Health authorities must manage within the

sums of money that they have, but there is always room for legitimate debate about whether the sums of money are large enough, given the health care needs of the district.
Resources are not limitless, but demands are. The hon. Member for Stretford and I probably agree that the demands on the NHS are almost infinite and that they could grow way beyond the capacity of this or any other country to fund. One of the main reasons for this is the very success of modern medicine, together with the much wider range and scope of treatment that modern medicine can offer.
In south Manchester, about which the hon. Gentleman painted an unnecessarily gloomy picture—although he pointed briefly to one or two sectors where he thought that things were going well—the district health authority is treating many patients who, only a few short years ago, had no hope. That is putting additional pressure on the system, to which the Government have responded by massive investment in the district. While I appreciate the hon. Gentleman's strength of feeling, and his care and concern for his constituents, there is no way in which south Manchester could be described as an area of deprivation and need compared with the rest of the north. It is one of the best funded districts in the whole of northern England.
In the NHS, the process of redistribution of resources to where the patients are is continuing. There is broadly a bipartisan agreement across the Floor of the House on this. We might disagree about the rate and the pace of redistribution, and say that it is going too fast relative to the sums of money in the NHS—those are matters for debate—but most of us realise that it makes common sense to put the money where the patients are. Money should follow patients, beds should be where patients are, and we need to redistribute money between the relatively well off and the poor areas.
That process was started by the Labour Government, and we are aware that the historically deprived—I do not blame any previous Administration for this—northwestern region needs our special attention. It is with that in mind that the total additional revenue allocation for the region this year alone is £43 million, which is a 5·5 per cent. increase in the cash available for 1984–85. That is a formidable real increase in revenue.
The north-west's capital allocation is, for the second year running, the second highest in England. The capital moneys are intended to make up the historic deprivation of the north-west, in terms of capital stock. The pressing need to rebuild older hospitals and units has been recognised by this increased capital allocation. The region is moving quickly, under the Government's policies, towards its revenue target, and this financial year it will be only 1·8 per cent. below that target. That compares with a figure of about 11 per cent. below target just six years ago.
Whatever else has happened in the region, vis-à-vis the rest of the country it has been brought pretty close to its revenue target quickly during the past six years.

Mr. Alfred Morris: Will the Minister give way?

Mr. Patten: I do not have much time, and I must reply to the hon. Member for Stretford. I intend no discourtesy to the right hon. Gentleman.

Mr. Morris: My constituency is involved.

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. If the Minister does not give way, the right hon. Gentleman knows that he cannot intervene.

Mr. Patten: The right hon. Gentleman knows that I intend no discourtesy. It would be a greater discourtesy if I were unable, because of the lack of time available to me, to reply in full to the points of the hon. Member for Stretford. I shall certainly write to the right hon. Member for Wythenshawe in reply to any points that he wishes to raise.
How has south Manchester benefited from all this? First, it has benefited through the district's development of teaching, which has continued apace. Secondly, during the past two years, nearly £5 million worth of capital spending has occurred in the district, which is a substantial sum. Thirdly, there is a new day unit for the elderly mentally infirm. Fourthly, £1·25 million has been spent on cardiac services and on kidney dialysis and associated renal services, which the hon. Member for Stretford was good enough to mention as improvements in his district. Fifthly, it is an incontrovertible fact that the district is one of the best funded in the region; it is the highest funded per head of population of the north-west's three teaching districts. That is reflected in the fact that, in relation to where it should be according to the calculations of the regional allocation working party, the district is expected to be about 12 per cent. above target this year. That is as far above target as, for example, a deprived district such as Bolton is below target.
I recently visited Bolton, at the invitation of two of my hon. Friends and one Labour Member, to see the problems there. I was with them for some time that day, and I saw the problems of a district such as Bolton, which is so much below target. I shall certainly consider the hon. Gentleman's invitation to pay a similar visit to his constituency.
One of the best yardsticks by which levels of service can be judged is the access to hospital inpatient facilities for bread-and-butter health services. In south Manchester at present, it is considerably easier to obtain hospital treatment quickly than it is in other districts, such as Bolton.
What are south Manchester's problems? We have had a mixture of fact and anecdote from the hon. Member for Stretford. I do not think that anyone can seriously argue that the district is under-funded. I do not agree with the hon. Gentleman. South Manchester's financial problems stem from overspending in previous years and from accumulated overspending. The hon. Member for Stretford referred to my shaking my head in disagreement; I see that he is now shaking his head in disagreement with me. We shall have to disagree. The district is facing accumulated overspending of £2·8 million. It would be surprising if a component of that overspending were not attributable to the cost of staff. The cost of staff in the NHS accounts for more than 70 per cent. of total revenue expenditure. Of course, staff costs will always be part of that overspending.
The district is facing this accumulated deficit. We cannot simply wipe the slate clean. How would we explain that to patients in Wigan, Bolton and other deprived districts in the north-west? I have to speak for them as well. All Governments, including Labour, have required

health authorities to live within their budgets. This Government's intention is to continue to ask them to do so.
The health authority, under its excellent chairman, Sir John Page, is working the district trying to find ways of reducing the accumulated overspend while continuing to provide the current excellent service. Until that is achieved, it will put in jeopardy all the progress that south Manchester has made, undermining the foundations of the district's development in the future as a centre of lifesaving surgery.
South Manchester is certainly a responsible health authority. It has set a budget for 1985–86 which it thinks can be contained within its cash limits. It is considering making a number of service changes to make all that possible. The regional health authority has agreed to some of those changes and has asked for others to be re-examined. All this consultation is a critical part of the process. The hon. Member for Stretford is not being fair to the way in which the consultation process is carried out. If he really feels that consultation is not being carried out according to the rules, it is important that he should write to me or to my right hon. and learned Friend the Minister for Health to point out exactly where and how the procedures are not being followed.

Mr. Tony Lloyd: Once a ward is closed—as with the geriatric ward at Withington hospital—what meaningful purpose can consultation have, even if it is carried out with the best will in the world? We all know that it will not reopen the ward.

Mr. Patten: It is not always the case that wards closed under the emergency procedures are thereafter closed permanently. There are a number of examples where wards have been closed temporarily by health authorities pending the consultation process. After consultation, because of the view of the health authority or of the Minister to whom the matter has gone on appeal, the decision has gone the other way and the wards have been reopened. The consultation process is extremely important, and I hope that people will take part in it wholeheartedly, where there have been short-term or temporary closures.
A number of changes in the district will be beneficial to patient care. Some of the suggested changes will mean, if approved by the region and followed by the district health authority, that people will receive treatment much closer to home. If people receive closer to their homes the care that they need, this is a change for the better. Neither my right hon. and learned Friend the Minister for Health nor myself approves the wholesale shipping of patients over substantial distances when they can be treated closer to their homes.
There are a number of beneficial effects in the proposals. The district treats a high proportion of elderly patients in hospital—much higher than the national average. I do not think that that accords necessarily with good, modern practice. It is sensible that the district wants to shift resources to treat those who do not genuinely need to be in hospital. I do not think that community care is a cheap option or that the transfer from hospital to community care is an easy transfer to make. We are living in a period of change, and community services are adopting and adapting practices. Of course, there will be problems in south Manchester, as in other areas of the country—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned accordingly at six minutes to Two o'clock.